Quick Links

Glossary of Terms

A B C D E F G H I J K L M N O P Q R S T U V W Y

-A-
Acceptance Fee	The fee charged for the initial processing of an application or Adoption Agreement.
Account Balance	The dollar value of the entire account.
Account Executive	The person who helps the customer with investment decisions and assists with problems.
Account Registration	The title of the account. EXAMPLE: Delaware Charter Guarantee & Trust Company, TTEE FBO: John Smith, IRA PO Box 8963 Wilmington, DE 19899 8963
Accrual Accounting	Crediting income and expenses to a given time period. The time period may or may not be the period in which they were received and/or paid.
Accrued Benefit	The benefit a plan member earns by a certain date. Defined benefit plans express it in the form of an earned benefit beginning at normal retirement age. A defined contribution plan expresses it as the vested balance of an individual's account.
Accrued Interest	Interest earned since the last interest payment.
ACH	See Electronic Fund Transfers.
ACP Test	See Actual Contribution Percentage Test.
Active Participant	An individual who is a plan member and for whom: At any time during the taxable year benefits are accrued under the plan OR The employer is obligated to contribute to or under the plan, OR The employer would have been obligated to contribute to or under the plan if any contributions were made to or under the plan.
Actual Contribution Percentage Test (ACP TEST)	Sometimes called the "M Test." This test checks the amount of employer matching and nondeductible (after-tax) contributions. It may also include the 100% immediately vested employer matching contributions and qualified nonelective contributions. The plan must refund the excess when contributions exceed a stated amount.
Actual Deferral Percentage Test (ADP Test)	Sometimes called the "K Test." This test determines if the highly compensated plan members deferred too much. It may also include the 100% immediately vested employer matching contributions and qualified nonelective contributions. When deferrals do exceed a stated amount, the plan must refund the excess to bring the plan in compliance. The plan may also make a contribution to non-highly compensated employees to help the test to pass. If the plan does not remedy a failed test, disqualification may occur. The IRS requires a test for each plan every year at the plan year end.
Actuary	A professional person who is trained in mathematics, probability, and statistics. Actuaries solve problems such as the necessary premium for life or health insurance and annuities, deposit levels for pension plan funding, and amounts an insurance company must keep on hand to support future benefit payments.
Adjusted Gross Income (AGI)	Income after certain deductions have been subtracted from sources of income such as wages and interest. AGI is determined when a person calculates income tax liability on the federal income tax return.
Administration	The care and management of an account by a trained individual or specialized company, such as a trustee, custodian, or plan administrator.
Administrative Policy Regarding Self Correction (APRSC)	An IRS policy designed to allow plan sponsors to resolve/self-correct certain minor, isolated, operational defects without disqualifying the plan.
Administrator	Same as "Plan Administrator." The employer, person, or group that the employer elects to make the administrative decisions for the retirement plan on behalf of the company.
Adopting Employer	A subsidiary or affiliated corporation/firm that adopts the plan of the parent or affiliated corporation/firm. One plan document can be used for either a: Separate and distinct plan for each adopting employer or Single plan covering all the adopting employers. See Reg 1.414 (E)
Adopting Employers	One or more employers who adopt another primary employer's pension plan. These employers may choose to assume the plan as either a single or separate plan: Single plan adoption the plan files only one tax form for all of the employers. Separate plan adoption the plan files separate tax forms for each adopting employer.
Adoption Agreement	The part of the prototype plan that contains the options from which an employer may choose. Options include choices in participation requirements, vesting schedules, and allocation, contribution, or benefit formulas. The adoption agreement and basic plan form the entire plan document. Return to top
ADP	See Actual Deferral Percentage Test.
Affiliated Service Group	Affiliated service groups can be divided into two categories, both of which can either be incorporated or unincorporated: Service type groups a service type group that consists of two service organizations. One of the organizations is a shareholder or partner in the other. It must regularly perform services for the other or associate with the other in performing services for a third party. It can also consist of a service organization and any other organization if: The other organization's business performs a significant part of business in a type of service historically performed by the service organization. It performs these services either: For the service organization, OR For another service organization, which is a shareholder, or partner in the first service organization and regularly performs service for it. 10% or more of the interests in the other organizations are held by officers, shareholders, or highly compensated employees or owners of: The first service organization, OR For another service organization which is a shareholder or partner in the first service organization and regularly associates with it in the performance of service to third parties. Management Type Groups (in tax years beginning after 12/31/88) A management type group who performs management functions for other organizations on a regular and continuous basis as part of its principle business. If it performs management functions for more than one organization, the affiliated service group includes all related "managed organizations." Organizations are related if: A loss on a sale of property between them would fail to qualify as a deduction, or Such organizations are members of the same controlled group of corporations.
Age 59½ Withdrawal	Distribution of pre-tax funds after a participant reaches age 59½ if permitted under the terms of the plan document.
Age 70½ Withdrawal	Distribution of account funds that is required once a participant reaches age 70½.
Age Weighted (Age Based) Profit Sharing Plan	A profit sharing plan whereby each participant has an age weighted factor determined by multiplying his/her compensation by an actuarial factor. This method of determining allocations favors older employees.
Aggregate Contributions	The numerator of the ACP test or the contributions tested in the 401(m) test, which is made up of employee after tax contributions and employer matching contributions. For testing purposes, it can also include elective contributions and qualified nonelective contributions.
Aggregation	Considering separate plans or companies as one plan or company to determine whether they satisfy certain requirements (such as for minimum participation and 401(k/m) nondiscrimination testing).
AGI	See Adjusted Gross Income.
Allocate	To divide and share to a plan member.
Allocation	The allotment of part of the employer's contribution to the account of each participant. In a profit sharing plan, it also refers to the allotment of earnings and forfeitures for the various accounts.
Allocation Formula	The formula used (in money purchase and profit sharing plans) to allocate the plan sponsor's total contribution to each eligible member.
Alternate Payee	A spouse, former spouse, child, or other dependent of the participant who is recognized by a Domestic Relations Order as having the right to receive all or a portion of the benefits payable with respect to that participant.
Amendment	A modification to an existing plan for changes requested by the employer or changes required by government agencies.
Amendment Effective Date	The date on which an amendment to a defined contribution plan will become effective.
American Standard Code For Information Interchange (ASCII)	A standard code for transferring text between computers or between a computer and a peripheral such as a printer. Files from one software application can be converted into ASCII and used in another software application.
American Stock Exchange (AMEX)	A leading securities exchange located in New York City. The AMEX provides the largest market for foreign securities in the United States.
AMEX	See American Stock Exchange.
Amortization	Gradually paying off interest bearing liability through a series of installment payments. Amortization slowly cuts liability, deferred charges, or capital expenditures (including interest) over a period of time.
Amount At Risk	The difference between the face amount of insurance under a permanent policy and the amount of assets (reserves.)
Anniversary	The annual recurrence of a specific date (the same day each year). Most plans and contracts update member and financial records at least annually. Other words meaning about the same thing include: "beginning of the plan year," "beginning of the plan fiscal year," and "beginning of the contract year."
Annual Additions	Annual additions refers to the sum of (1) employer contributions, (2) any forfeitures added to a member's account, and (3) member contributions. Annual additions may not exceed a yearly limit. If allocation of forfeitures or an error in estimating a member's annual compensation causes the annual additions to exceed the limit, they could be held in suspense, used to reduce employer contributions, or returned to the member.
Annual Fee	The fee, which is charged to the customer for the yearly maintenance of the retirement account.
Annual Plan Contributions	Total assets contributed to the plan - both participant and employer contributions - as of the most recent plan year-end.
Annual Report	For employee benefit plans: The annual information return that the IRS/DOL/PBGC requires the employer or plan administrator to file regarding the qualification, financial condition and operations of any funded deferred compensation plan. The IRS requires this report for HR 10 plans and individual retirement accounts and annuities, as well as for regular corporate plan.
Annual Yield	The monetary income or percentage of return in dividends or interest received annually from an investment.
Annualize	To express in terms of 12 months, a rate of return for a period longer or shorter than 1 year.
Annuitant	A person entitled to receive an annuity payment from an insurer.
Annuity	The regular payment of money for life or for a specified time. The receiver or beneficiary of such payment is the "ANNUITANT."
Annuity Maturity Date	Usually the date coinciding with, or one month before, the annuity commencement date. Annuity maturity date means the same as annuity purchase date (except when involving a deferred annuity). The member actually buys the annuity on this date.
Annuity Period	The time span between the benefit payments made under an annuity contract.
Annuity Purchase Rate	A rate used to figure the single sum amount needed to purchase annuities. Most contracts usually guarantee, and include within, the annuity purchase rate.
Annuity Quotes	A price given to a customer for the cost of an annuity.
Approved Plan	A pension, deferred profit sharing, or stock bonus plan that meets the requirements of the IRC and the applicable regulations. Such approval qualifies the plan for favorable tax treatment. Approval of a pension plan does not indicate any judgment regarding the plan's actuarial soundness.
ARC	See Accounts Receivable Conversion
ASCII	See American Standard Code for information interchange.
Asset	Something of value that is owned.
Asset Allocation	Asset allocation refers to the process of deciding how to invest retirement plan assets.
Asset Value	The market value of plan assets at the end of some specific time period.
Associated Employer	Also called an adopting employer. An associated employer is a subsidiary or affiliated corporation/firm, which adopts the plan of the parent, or affiliated corporation/firm. One plan document can used for either a: Separate and distinct plan of each of the adopting employers, or Single plan covering all the adopting employees. Reg. 1.414(E) explains this in detail.
Attest	To witness the signing of a document and then to sign it as a witness.
Attribution	The process of assigning pension benefits or cost to periods of employee service or assigning ownership of a business to other family members when determining which employees are highly compensated employees.
Automated Clearing House (ACH)	See Electronic Fund Transfers.
Automated Customer Account Transfer Systems (ACATS)	A set of regulations of the New York Stock Exchange for member firms which requires that all trustee to trustee and broker to broker transfers between member firms take no more than 24 hours to complete. The delivering firm can be fined up to $100 per day per account if this regulation is not followed. This regulation became effective February 24, 1986. Also, the name of a standardized transfer form that is used for such transfers.
Automatic Survivor Coverage	The Retirement Equity Act of 1984 requires a Defined Benefit Plan and/or Money Purchase Plan to provide automatic survivor benefits to the surviving spouse of a plan member when: The vested member retires under the plan. The benefit applies in the form of a qualified joint and survivor annuity. The vested member dies before retirement. The benefit then applies in the form of a Qualified preretirement survivor annuity. The Automatic Survivor Coverage Rules also applies to a profit-sharing or stock bonus plan unless the: Plan provides that the member's full vested account balance is paid to the surviving spouse (or to another beneficiary if the spouse consents or if there's no surviving spouse.) Member doesn't elect payment of benefits in the form of a life annuity, and Plan isn't a transferee of a plan required to provide automatic survivor benefits (For example, a Defined Benefit Plan.) A member may, with spousal consent, elect out of joint and survivor annuity or pre-retirement survivor annuity coverage.
Average Deferral Percentage Test (ADP Test)	Same as Actual Deferral Percentage Test that is the term used in the Internal Revenue Code. (See Actual Deferral Percentage Test) Return to top
-B-
Back-End Load	A fee charged by a mutual fund company when shares are sold.
Backpricing	Assigning an interest rate to money received that is available only to money received on an earlier date. This rate applies even though the money was not actually invested at that time. Most carriers try to avoid backpricing as it may cause financial difficulty. Backpricing hurts a carrier when the rate in the past was higher than the current rate. Backpricing may result in lower rates for all the carrier's customers to make up the difference.
Base Percentage	(Also referred to as: Base Benefit Percentage) A percentage of compensation in the benefit or contribution formula not in excess of the integration level in an integrated plan.
Basic Plan	The second part of a prototype. It contains all the standard definitions and provisions which aren't subject to employer choice. A signed adoption agreement and the basic plan constitute the employer's retirement plan.
Beneficiary	A person or entity that is entitled to receive assets in the account when the account holder dies.
Benefit	The amount to be paid to a participant of a retirement plan because of retirement or termination of employment or to the beneficiary because of the participant's death.
Benefit Formula	The basis for determining payments to which participants may be entitled under a pension plan. Pension benefit formulas usually refer to the employee's service or compensation or both.
Blue Sky Laws	State securities laws which require financial institutions to register their offerings and to provide details on each issue so that investors can base their judgments on relevant data. The purpose of the laws is to prevent securities fraud - in other words, to protect investors from unwittingly buying a piece of "blue sky."
Bond	Basically an IOU or promissory note of a corporation usually issued in multiples of $1,000 or $5,000, although $100 and $500 denominations are not unknown. A bond is evidence of a debt on which the issuing company promises to pay the bond holders a specified amount of interest for a specified length of time and to repay the principle on a specified date.
Bonding	An agreement that guarantees against financial loss caused by acts of a person. ERISA requires that plans have a fidelity bond to insure against loss of plan funds through fraud or dishonesty by any person who handles or controls plan funds.
Book Entry	The recording of shares "on the books" rather than issuing a certificate.
Book Value	The value of assets accounted for at "face" or cost value rather than at market value. In other words, the actual cash value of an investment (such as a stock or bond) if it were sold at a certain point in time.
Break In Service	An interruption of employment. Break in service rules define the mechanics by which certain periods of previous employment do not have to be counted for purposes of eligibility and/or vesting.
Broker	An agent who handles the public's orders to buy and sell securities, commodities, or other property. For this service a commission is charged.
Broker Dealer	A financial firm engaged in the purchase of commodities and securities for its own account and at its own risk. A brokerage firm whose brokers act as a principal rather than an agent. Dealers often sell investments sponsored by the firm (proprietary products) or buy investments for the firm's inventory and then sell to the customer from this inventory. The dealer's profit/loss is the difference between the purchase and the sale price. A broker dealer owns a seat or clears through a firm that owns a seat on one of the exchanges.
Broker of Record	The name of the registered representative who acts for a customer.
Brokerage Firm	A company who employs the broker. A broker is an agent who negotiates contracts, purchases, or sells in return for a fee or commission. A brokerage firm owns a seat or clears through a firm that owns a seat on one of the exchanges.
Broker To Broker Change	A change of brokerage firms for the customer's account with the same trustee. Return to top
-C-
Cafeteria Plan (i.e. Section 125 Plan)	A plan in which members choose from two or more benefits that may be nontaxable or taxable (including cash or property). In tax years beginning after 12/31/80, cafeteria plans let an employee (covered by a profit sharing or stock bonus plan with a qualified cash or deferred arrangement) make an election to receive employer plan contributions. To the extent that the cash or deferred rules permit contributions, the contributions will not be taxable to the cafeteria plan. The plan must be written, in effect, and covering employees only.
Calendar Year	The 12 consecutive month period which runs from January 1 through December 31.
Calls	Convey the right to buy a fixed quantity of a specified stock at a specified price within a limited period of time. See also "Options."
Capital Assets	Relatively permanent assets held for use or income rather than for sale or direct conversion into sellable goods or cash. Examples include a factory, equipment, and property. Intangible assets such as "good will" and "patents" also fall into this group. Sometimes referred to as fixed assets.
Capital Gain	The gain from the sale or exchange of a capital asset. Usually the gain is the amount received minus the taxpayer's cost. The profit (or loss) from the sale of a capital asset may be either long term or short term. Long-term capital gain is gain on an investment held for at least a year and a day. Short-term capital gain is gain on an investment held less than a year and a day. Long-term capital gain usually results in a lower tax rate than short-term capital gain.
Cash Account	One of two basic types of accounts through which securities may be purchased at a brokerage firm. Payment for the securities must be made by the settlement day (the fifth business day after the transaction). See also "Margin."
Cash Accounting	The type of accounting that records income in the period in which it is actually received and expenses in the period in which they are paid.
Cash Balance Plans	A defined benefit plan that uses an account balance rather than a monthly retirement income. The account value increases each year. Members receive an annual or more frequent benefit report listing their current account balance. Although this plan appears to operate like a defined contribution plan, the employer still takes the investment risk. Funding remains unallocated.
Cash Flow	A measure of an organization's liquidity. The amount of usable cash after paying all expenses (including taxes).
Cash Or Deferred Arrangement (CODA)	A plan that allows employees to elect to take part of their pay in cash or to request their employer to make contributions to the plan on their behalf. Since the rules for CODAs are given in Section 401(k) of the IRC, CODAs are also called 401(k) plans. For more information, see 401(k) plans.
Cash Out Rule	The Internal Revenue Code defines a cash out as a distribution to a plan member, which results in the forfeiture of the member's non-vested benefit. An "involuntary cash out" may occur if the member's vested accrued benefit or account totals $5,000 or less. A voluntary cash out occurs when this amount totals more than $5,000 and the member requests a cash payment.
Cash Values	A term most often used in connection with lump sum payments to an employee upon termination of employment. The amount accumulated for the employee while covered under the plan. The term cash value is used interchangeably and incorrectly with FTV (full termination value), ETC V (employee termination value), or ECV (employee cash value).
Cashier's Check	A check issued by a bank, drawn on the bank's own funds, and signed by its cashier. It is generally considered as good as cash. See also "Certified Check."
Catch - Up Contribution	Beginning 2002, a type of contribution available to individuals age 50 or older by the end of the taxable year that have maximized their regular or deferral contributions to a tax advantaged savings account.
CCH	See "Commerce Clearing House."
C Corp	Any corporation, including a professional corporation or association, is considered a C corporation, unless an election is made to be treated as an S corporation.
Certificate of Deposit	An interest bearing bank deposit that earns a specific rate for a given time period. At the end of that time, the bank pays both principal and interest. Issued by commercial banks and savings institutions and sometimes sold by brokerage firms.
Certified Check	A check drawn on the depositor's account, guaranteed by the bank, which certifies on its face that cash has been restricted for immediate payment.
Certified Financial Planner	A designation awarded by the college for financial planning. To receive this designation a person must combine required education and experience with passing five examinations covering investments, risk management, tax shelters, and estate planning.
Certified Pension Consultant	A designation awarded by the American Society of Pension Actuaries. Holders must combine required experience with passing three examinations covering employee benefit basics.
Certified Public Accountant	A licensed accountant often used by employers for audit and tax work and, therefore, involved in payments, records, and tax reporting on pension plans.
CFP	See Certified Financial Planner.
CGS	See Consolidated Group System. Return to top
CGS Cycle	The daily batch processing of CGS input data against CGS master files and the performing of operations as specified by the computer programs.
CGS Record	A set of group of fields (data) treated as a unit. A record is the element located, identified, and used by the computer to perform a requested activity. Many types of records exist, including master records containing permanent data and transaction records that reflect the results of one or more calculations.
Church Plan	A tax exempt plan (under Internal Revenue Code Sec. 501) established and maintained by a church or convention or association of churches. The following do not qualify as church plans: A plan set up primarily for the benefit of employees in an unrelated business (as described in Internal Revenue Code Sec. 513). A multi employer plan which includes one or more tax exempt churches or conventions of churches as employers. For plan years beginning before January 1, 1993, members of a plan (in existence on January 1, 1974) covering employees of a tax exempt church agency (or tax exempt convention or association of churches) are considered employees of the church.
CIP	See Customer Identification Program
Clearing Firm	Brokerage firm, which provides clearing services for smaller firms. The services include processing trades, holding securities, providing statements, and carrying insurance. The clearing firm charges the smaller firm a fee for these services.
Cliff Vesting	When using cliff vesting, a member is 0 percent vested until after serving a certain period of vesting service. The member becomes 100 percent at that point. For example, 0 percent vested before three years of vesting service, 100 percent after three years.
Closed End Fund	An investment company that trades shares on a securities exchange or the over the counter market. The company's charter limits the number of shares outstanding, and the open market determines their value.
Closely Held Corporation	A non-public corporation that is usually owned by a few shareholders.
Closing Agreement Program (CAP)	An IRS program that provides for a resolution of either form or operational defects in dispute between the IRS and the plan sponsor that normally would result in disqualification of the plan. This program is more encompassing than APRSC, which only applies to operational defects.
COBRA	See Consolidated Omnibus Budget Reconciliation Act.
CODA	See Cash or Deferred Arrangement.
CODE	See Internal Revenue Code.
COLA	See Cost of Living Allowance.
Collectively Bargained Plans	Retirement plans covering union members. In these plans union negotiated work contracts determine plan provisions (such as the level of employer contributions or benefits). Example: A Taft Hartley Plan. Not all plans that cover union members are collectively bargained.
Commission	The fee charged by a person or institution (a broker) for arranging the purchase and sale of property or securities.
Common Law Employee	An employee under common law rules. Law distinguishes this from a self employed individual who is considered an employee only for qualified plan purposes. The common law rules consider an individual an employee if the person or organization for whom that individual works maintains the right to control and direct the individual's work not only as to the accomplished result, but also as to the details and how the employee accomplishes the results.
Common Stock	A unit of ownership in a corporation with residual (or last) ownership rights. Owners of common stock are paid after everyone else, both for dividends and in the case of liquidation.
Compensation Cap	The Omnibus Reconciliation Act of 1993 (OBRA - 93) placed a limit on the amount of compensation that may be considered for contribution purpose. Beginning in 1994 the cap was $150,000. The cap is $200,000 in 2002.
Compound Interest	Interest that is earned on previously earned interest as well as on the principal. Interest may be compounded daily, monthly, quarterly, semiannually, or annually.
Compounding	Arithmetic process of finding the final value of an investment or a series of investments when compound interest is applied.
Conduit IRA	An IRA that receives qualified plan distributions with the intent of rolling the distributions into another qualified plan in the future.
Consolidation	To merge the holdings of two accounts (such as mutual fund accounts) into one account.
Consultant	An independent advisor specializing in employee benefit plans. Consultants receive compensation through fees charged to a client or a commission paid by insurance companies.
Consumer Price Index (CPI)	Also known as "cost of living index." A series of numbers whose ratios measure the relative prices (up or down) at various times of a selected group of goods and services. The items measured typify those bought by urban families. Both the U.S. and Canada use this term. Many pension and employment contracts are tied to changes in consumer prices, as protection against inflation and reduced buying power. CPI components include housing costs, food, transportation, and electricity.
Contingent Beneficiary	The beneficiary of an account should the primary beneficiary die before the account holder.
Contribution Formula	The plan provision that tells when and in what amounts the employer will make contributions to a defined contribution plan.
Contribution Limits	The maximum dollar amount allowed on annual additions (employer contributions, certain employee contributions, and forfeitures) for an employee under defined contribution plans of an employer.
Contributions	The monies that are deposited into a retirement account.
Contributory	A plan is contributory if the employees share the cost of purchasing benefits on a required or voluntary basis.
Controlled Group of Corporations	For eligibility, vesting, and benefits purposes, ERISA requires that all employees of all corporations classified as members of a controlled group of corporations be treated as though employed by a single employer. Controlled group plans will be treated as one in determining maximum benefits and contributions, and whether the plan meets the coverage and anti-discrimination requirements of the code. Code Section 1563(A) gives the basic definition. A summary of the three types of controlled groups: Parent subsidiary controlled groups. They exist among one or more chains of corporations connected through stock ownership with a common parent corporation if one or more of the other corporations own 80 percent of each corporations stock. Brother sister controlled group. They exist where five or fewer people (not corporations) own at least 80 percent of each corporation's stock and more than 50 percent of each corporation's stock when counting only identical ownership. Combined controlled groups. These combine parent subsidiary and broker sister controlled groups. In this group each corporation belongs to either a parent subsidiary or a brother sister group and at least one corporation is a common parent and a member of a brother sister group.
Convertible Preferred Stock	Preferred stock that may be exchanged for common stock at a designated time and price.
Corporate Resolution	Verifies that the President or any officer of a company is authorized to execute all assignments, transfers, or power of attorney necessary to process the sale of stocks, bonds, mutual funds, etc.
Corporation	A legal entity authorized by law to act as a single person. A corporation: Is created according to the laws of incorporation, Is responsible for its own debts and may raise capital, May continue to exist after the death of its original owners, and Is taxed at corporate rates.
Correspondent Firm	Usually a small investment firm that uses the services of a larger firm to provide clearing services for them.
Cost Basis	The portion of a benefit that is not taxable income because the employee has already been taxed on it.
Cost of Living Allowance	See Consumer Price Index.
Coverage Requirements	The number and type of employees required to participate in a plan in order for it to legally qualify. The law established these requirements to prevent discrimination in favor of highly compensated employees. Refer to Code Section 410(B).
Coverdell Education Savings Account	A trust that is created for the purpose of paying for qualified education expenses of a designated beneficiary of the account.
Covered Writing	The practice of writing (selling) an option on a security already owned by the customer.
Credited Service	A period of time (before or after the effective date of the plan) recognized as service for one or more plan purposes, such as determination of benefit amounts, entitlement to benefits, and vesting.
Current Liability	A plan's current liability refers to all liabilities to plan members and their beneficiaries.
Current Value	The present value of an amount of series of amounts payable at specified times in the future.
Cusip	The number assigned by the committee on uniform identification procedures to corporations and other entities that have publicly traded stock.
Customer Identification Program (CIP)	Program mandated by the USA PATRIOT Act in an attempt to facilitate the prevention, detection, and prosecution of international money laundering and the financing of terrorism.
Custodian	A party appointed to provide for the safekeeping and deposit of investment assets. Return to top
-D-
Date of Trust	The date on which the trustee approves the application or Adoption Agreement for a retirement plan.
Dealer	An individual or firm in the securities business acting as a principal rather than as an agent. Typically, a dealer buys for his own account and sells to a customer from his own inventory. The dealer's profit or loss is the difference between the price he pays and the price he receives for the same security.
Death Benefit	The amount payable to a beneficiary when a member or annuitant dies.
Death Certificate	A legal document from a coroner or hospital officially confirming an individual's death. An original copy of a death certificate must have a seal certifying it.
Debenture	A promissory note backed by the general credit of a company and usually not secured by a mortgage or lien of any specific property.
Deductibility of Employer Contributions	The Internal Revenue Service (IRS) deems employer contributions made to a qualified plan as deductible. Facts about deductibility include: Contributions to a qualified plan are deductible as an ordinary and necessary business expense. The IRS allows no deduction for an employee if the employer combines the contribution with other deductions for compensation for the employee, or if the amount exceeds a reasonable allowance for the employee's service. The Internal Revenue Code (IRC) describes deductible employer contributions under Section 404. Section 162 and 212 list deductible trust expenses (trust fee, etc.). An employer may take a deduction for contributions only in the year in which paid. However, employers on an accrual basis may make contributions up to the time prescribed for filing their returns (including extensions). An employer must show liability. An employer may carry forward to a succeeding year, any amounts contributed over the deductible amount allowed for a taxable year. Of course, amounts carried forward fall subject to the deductible limit for such succeeding year. The maximum deductible amount for a defined contribution plan is 25 percent of participating payroll. For 401(k) plans, an additional deduction is allowed for deferral contributions. The maximum deductible for a pension plan must be "reasonable."
Default	It is an assumption the computer makes when no other parameters are specified. It is used in software to describe any action the computer or program takes on its own with embedded values; the failure to pay a financial debt; on adoption agreements - a provision that is chosen when no other selection is made.
Deferred Annuity	An annuity that provides for the start of payments at some future date. A deferred annuity becomes payable at a specified date or age usually normal retirement age. This contrasts with an immediate annuity, with which payments begin on the first payment date following purchase.
Deferred Compensation Plan	A nonqualified retirement plan in which the plan participant gives up the right to immediately receive a portion of wages in exchange for the employer's promise to provide an amount at a later date. It can be either a funded or unfunded plan.
Deferred Profit Sharing Plan	A plan started and maintained by an employer to allow employees or their beneficiaries to share in the profits of the company. The plan must provide a definite predetermined formula for allocating the contributions made to the plan among the members and for distributing funds accumulated under the plan after meeting certain requirements. These requirements can include a fixed number of years, the attainment of a stated age, or the prior occurrence of some event such as layoff, illness, disability, retirement, death, or severance of employment. (IRS regs. state requirements allowed.)
Deferred Retirement	When an employee works past normal retirement age.
Deficit Reduction Act of 1984 (DEFRA)	This act added to and revised some changes made by TEFRA in 1982. REA (1984) followed DEFRA with more changes and revisions.
Defined Benefit Plan	A type of retirement plan that allows an individual or corporation to know the exact dollar figure that will be received either monthly or in a lump sum at normal retirement age.
Defined Contribution Limit	The maximum contributions and additions an employer may make on behalf of a pension plan participant.
Defined Contribution Plan	A general type retirement plan in which the plan sponsor promises a certain level of contributions to the retirement plan for each member. (However, a profit sharing plan could provide nothing in any given year.) The amount contributed to each member's individual account and its investment results, expenses, and allocation of forfeiture of accounts from other members determines the amount available to provide a benefit commonly used defined contribution plans include money purchase, profit sharing, and target plans.
DEFRA	See Deficit Reduction Act of 1984.
Delinquent Filer Voluntary Compliance Program (DFVC)	A Department of Labor program established to encourage, through the assessment of reduced civil penalties, delinquent plan administrators to comply with annual reporting requirements.
Department of Labor (DOL)	This department of the federal government imposes certain regulations on retirement plans, such as required summary plan documents providing specific information to plan members.
Deposit	The contributions, or payments, made by the plan sponsor (or sometimes by both the plan sponsor and member) to fund a retirement plan.
Deposit Year	The year an employer chooses as the 12 month period for plan deposits, often the same as the plan year.
Determination Date	The date on which the top heavy status of a plan is determined. It is almost always defined in the plan as the last day of the preceding plan year. For the first year of a plan, it is the last day of that first year.
Determination Letter	A letter issued by a district director of the Internal Revenue Service. If favorable, the letter states that the IRS review of the plan determines that it qualifies under Section 401(a) of the Internal Revenue Code. An adverse letter denies qualification. The IRS issues determination letters for new, amended, and terminating plans. For the advantages of getting such a letter, see the definition of qualified plan.
Direct Rollover	A direct rollover occurs when a qualified plan distribution is delivered to the receiving IRA or qualified plan without participant taking receipt of the assets. It is reported to the IRS as a rollover.
Disclosure Statement	Basic information provided by an IRA plan sponsor to all new customers. The language must be easy to read and understand. The disclosure statement must point out all fees, expenses, and penalties that are associated with the sponsor's plan as well as IRAs in general.
Discretionary Profit Sharing Formula	A profit sharing plan in which the board of directors of the sponsoring employer determines the amount of contribution each year, at its discretion.
Disqualification	Loss of a pension plan's tax favored or qualified status.
Disqualified Person	A person who is one of the following: A fiduciary. A person providing services to the plan. An employer any of whose employees are covered by the plan. An employee organization any of whose members are covered by the plan. A 50% or more owner of the employer of employee organization. Any relative of any of the foregoing except (4). A corporation, partnership, trust, or estate 50% or more owned by persons in (1) through (5) above. An officer or director of the plan or of a person in (2) through (5) and (7) above.
Distribution	A payment in the form of cash or securities to a retirement plan participant or beneficiary. The portion of a limited partnership's earnings that are paid to the individual's partnership. Similar to the dividends that are paid on common stock.
Diversification	One method of investing used by prudent investors. An investor who uses this method purchases a variety of stocks, bonds, etc. By holding a mix of interest bearing mediums, the portfolio gives a good rate of return and security to the owner. Diversification cannot eliminate, but can reduce risk of loss.
Divesting	Before ERISA many plans penalized a plan member with a loss of vested benefits for (1) withdrawing member contributions or (2) committing a "bad boy" act or perhaps working for another employer who was in competition with the former employer. Bad boy acts include things such as stealing, insubordination, felony, etc. The law now limits divesting to situations where the vesting percentage for employee is less than 50 percent and the employee withdraws member contributions. The sponsor must allow a member to "buy back" the benefits lost upon rejoining the plan by repaying the amount withdrawn, plus interest.
Dividend	A payment to a stockholder out of surplus or earnings by a corporation.
Dividend Reinvestment	A program whereby dividends paid on stock are used to purchase additional shares of that stock.
DOB	Date of Birth.
DOL	See Department of Labor.
Domestic Relations Order (DRO)	A judgment, decree, or order made pursuant to a state domestic relations law that relates to child support, alimony payments, or marital property rights to an alternate payee. (See also QDRO).
DOT	Abbreviation for "Date of Trust." The date on which the trustee approves the application or Adoption Agreement for a retirement plan. Can also be an abbreviation for "Date of Termination" for individual participants.
Dow Jones Average	A popular gauge of the stock market based on the average closing prices of active representative stock. Dow Jones & Co. publishes this average. The Dow Jones Average began July 3, 1984. Railroads made up nine of the original stocks. The Dow Jones Average now consists of 65 stocks (30 industrials, 20 transportation, and 15 utilities). They include only high quality, common stock listed on the New York Stock Exchange.
Dow Jones Industrial Average	The oldest and best known of all measures of U. S. stock values. The Dow, made up of 30 very large stocks, represents 15% - 20% of the value of all stocks on the New York Stock Exchange. Being an "unweighted" index means every stock in this index carries the same weight. Return to top
-E-
Early Retirement	Retiring before normal retirement date. A plan with early retirement allows a member to terminate employment before normal retirement date, but after a specified date. The termination of employment involves the payment of a retirement allowance. The plan usually reduces the retirement allowance payable to an amount lower than the accrued part of the allowance at normal retirement age.
Early Retirement Date (ERD)	The actual date of retirement that occurs before normal retirement date (NRD).
Earned Income	The amount of net compensation after all business expenses and deductions received by a self employed individual as a result of services rendered are deducted.
Economic Recovery Tax Act of 1981 (ERTA)	Congress designed ERTA to boost individual savings and capital formation by expanding certain retirement plan eligibility rules and raising the ceiling on retirement deductions. It also eased some of the restrictions on retirement savings. Retirement plan changes under ERTA include IRAs, deductible employee contributions, SEPs, and elimination of constructive receipt for qualified, HR 10, and Subchapter S Corporation plans.
EE	See Employee
Effective Date	The date on which a retirement plan goes into effect.
EGTRRA (Economic Growth & Tax Relief Reconciliation Act of 2001)	Tax law signed on June 7, 2001, which changed many of the rules for IRAs and qualified plans with the intention of encouraging individuals to save more for retirement and employers to sponsor qualified plans for their employees.
Elapsed Time Method	The computation of credit for plan service that is measured from date of employment to date of severance.
Elective Contributions	Contributions to a 401(k) plan that an employee elects to receive. This includes elective deferrals and matching contributions. Employees only receive a matching contribution if they elect to make a deferral.
Elective Deferral	The part of income an employee elects to deposit into a retirement plan before taxes. Typically found in 401(k) and TDA plans. Salary deferral contributions & deferrals under a cash or deferred arrangement made at an employee's election.
Electronic Fund Transfers	The electronic transfer of money through the banking system. The banking industry refers to this transfer as an ACH (automated clearing house).
Eligibility	The requirements of the plan that an employee must meet to be able to enter the plan and receive a contribution. Example: Must attain a certain age (not more than 21 years); must complete a certain number of years of service with the company.
Eligibility Date	The date an individual becomes eligible for benefits under the pension plan.
Eligibility Requirements	Conditions that an employee must satisfy to join a plan, such as the completion of one year of service with the employer and attainment of a specified age. Conditions that an employee must satisfy to get a benefit, such as the completion of ten years of service and the attainment of age 65 for a pension.
Employee (EE)	Any person employed by an employer. People often use "employee" interchangeably, and incorrectly, with the terms "member" and "participant."
Employee Benefit Plan	A plan established or maintained by an employer or employee organization (or both) to provide employees with a certain benefit. Benefits often provided include pension, profit sharing, stock bonus, thrift, medical, sickness, accident, or disability. Return to top
Employee Contributions	A plan contribution made by an employee. The plan may or may not require the contributions as a condition of participation.
Employee Retirement Income Security Act of 1974 (ERISA)	Congress passed this pension reform bill in 1974, and President Ford signed it into law on September 2, 1974. This act provides protections and guarantees for employees covered by private pension and welfare plans and for their beneficiaries. The U.S. Department of Labor controls some of these provisions; the Internal Revenue Service controls others.
Employee Stock Ownership Plan (ESOP)	An ESOP combines a vehicle for corporate financing and an employee benefit plan. Typically the employer creates an employee stock ownership trust and either contributes or sells the stock to the trust. If contributing stock, the employer deducts the fair market value of the contribution as a business expense on the tax return. If the trust buys the stock, it takes a loan with a lending institution pledging the stock as capital. The employer may also guarantee the repayment of the loan. The trust then pays off the loan from contributions it receives from the employer. The employer gets a tax deduction for contributions made to the trust (limited to 15% of covered employees' payroll). Employees do not pay taxes on these contributions until receiving a distribution. Upon selling the stock to the trust, the employer receives the cash borrowed by the trust, which the employer might otherwise have had to borrow. Normally, if borrowing the money, the employer could deduct only the interest on the loan. In the ESOP situation, the employer may deduct the full amount of the contributions used to pay off the principal and interest of the loan. No guarantees apply to an ESOP since all benefits relate directly to the value of the corporation's stock. Also, an ESOP, like other defined contribution plans, receives no guarantees from PBGC (Pension Benefit Guaranty Corporation).
Employer (ER)	Someone who employs another, usually for wages or salary. In relation to an employee benefit plan, this means any person acting directly as an employer, or indirectly in the interest of an employer. This includes a group or association of employers acting for an employer in such capacity.
Employer Discretionary Contribution	A contribution typically allowed under profit sharing plans. The contribution is made at the employer's "discretion." The plan may specify that an organization need not show a profit to make a discretionary contribution.
Employer Identification Number (EIN)	A unique number assigned to the employer for tax reporting purposes similar to an individual's social security number.
Entry Date(s)	The date on which the participant is covered by the plan. The entry date is usually the first day of the plan year or the first day of the seventh month of the plan year. However, many sponsors of 401(k) plans allow entry on the first day of the quarter or month.
EPCRS (Employee Plans Compliance Resolution System)	Effective 9/1/98, EPCRS provides a comprehensive system of correction programs for sponsors of retirement plans. This system permits plan sponsors to correct qualification failures and continue to provide their employees with retirement benefits on a tax-favored basis. EPCRS includes self correction (APRSC), voluntary correction with IRS approval (VCR and Walk-in-CAP), correction on audit (Audit Cap) and TVC for tax-sheltered annuities.
ER	See Employer.
ERISA	See Employee Retirement Income Security Act of 1974.
ERISA Exempt Plan	A plan that either cannot or may elect not to comply with ERISA. Generally, these are governmental or church plans. Also called an exempt plan.
Errors and Omissions Coverage	Also known as Fiduciary Liability Insurance. A plan, fiduciary, employer, or employee organization purchases this insurance coverage for its fiduciary or for itself. It covers liability or losses caused by the act or omission of a fiduciary.
ERTA	See Economic Recovery Tax Act of 1981.
Estate Tax	A tax imposed on a decedent's estate as a separate entity and not on the portions of the estate that are being transferred to specific beneficiaries.
Excess Accumulation	The amount of a required mandatory distribution (RMD) that a person fails to take from an IRA or employer plan. Excess accumulations may be subject to a 50% penalty tax.
Excess Aggregate Contribution	The amount of matching (and/or voluntary) contributions made on behalf of highly compensated employees that exceed the allowable limits as permitted under the ACP test.
Excess (Benefit) Percentage	In an integrated plan it is the percentage of pay used in the benefit calculation that is in excess of the integration level.
Excess Compensation	Used in an integrated plan, this term refers to the part of compensation, over a certain amount, upon which the plan bases retirement benefits.
Excess Contribution	The amount of a contribution that exceeds the amount allowed for the plan made on behalf of highly compensated employees under the ADP test.
Excess Deferrals	Deferrals made to a plan above the limitations of IRS Code Section 402(g). Employers may refund these contributions to the members at any time during the plan year. The member reports refunds as income and bears any tax penalty. Deferrals in excess of the tax year maximum must be: Refunded by April 15 to avoid double taxation. Taxed in the year of contribution and the year of distribution if not refunded by April 15. Included in 401(k) test if refunded.
Excess Distribution	A distribution in a calendar year that exceeds a certain amount, adjusted for inflation. The IRS imposes a 15% penalty tax on the participant unless the excess distribution results from death, a QDRO, distribution on non taxable contributions, or amounts rolled over within 60 days of distribution. (Starting 1997, no penalty will be assessed on excess distributions.)
Excess Percentage	A percentage of compensation in the benefit or contribution formula in excess of the integration level in an integrated plan. (Also referred to as excess benefit percentage)
Excess Plan	A plan which has an integrated formula providing a smaller rate of benefits or contributions for compensation at or below the plan's integration level than the rate that applies to compensation above that level.
Excise Tax	A tax on privileges often imposed in the form of a license or other fee. Employers who contribute to qualified retirement plans and fail to contribute enough to prevent a funding deficiency will fall subject to excise tax liabilities.
Exclusive Benefit Rule	A qualified plan must be maintained for the exclusive benefit of participants and their beneficiaries. The plan fiduciaries must also execute their duties to participants and beneficiaries for the exclusive purpose of providing benefits and paying administrative expenses.
Exempt Plans	Benefit plans exempt from all regulatory provisions of ERISA. Regulatory provisions cover areas such as reporting and disclosure, participation and vesting, funding and fiduciary responsibility. Exempt plans include governmental and church plans. Return to top
-F-
Failsafe Provision	In theory, a retirement plan may provide as large a benefit as it can afford. However, ERISA set forth (1) maximums on retirement income under defined benefit plans (the largest amount a plan member can receive) and (2) revised maximums on the contributions under defined contribution plans that a plan sponsor can pay to or make for an employee covered under a qualified plan that receives favorable tax treatment. The maximum benefit rules define the total income allowed to an employee under all of an employer's defined benefit plans or the total contributions a plan sponsor can make for an employee under all defined contribution plans of the sponsor (whether terminated or not).
Fair Market Value	The value of an account as of a certain date. The December 31 fair market value must be provided to IRA holders and IRS every year.
FASB (Financial Accounting Standards Board)	An accounting body that sets uniform standards for treatment of accounting items.
FBO	For The Benefit Of.
Federal Deposit Insurance Corporation (FDIC)	Insures deposits into depository institutions.
Federal Insurance Contribution Act (FICA)	The law that imposes a payroll tax to help fund social security benefits.
Federal Withholding	Federal income tax applies to the taxable part of a distribution from a retirement account.
FICA	See Federal Insurance Contribution Act.
Fiduciary	ERISA determines a plan fiduciary as any person who: Exercises any discretionary authority or discretionary control over the management of a plan or the management or disposition of its assets. Gives investment advice for a fee or other compensation, direct or indirect with respect to any money or other property of such plan, or has any authority or responsibility to do so, or Has any discretionary authority or responsibility in running a plan. In general, being a fiduciary shows a relationship of trust and confidence. A person (the fiduciary) holds or controls property for the benefit of another.
Fiduciary Liability Insurance	Also known as errors and omission coverage. A plan, fiduciary, employer, or employee organization purchases this insurance coverage for its fiduciary or for itself. It covers liability or losses caused by the act or omission of a fiduciary.
Fiscal Year	A 12-consecutive month period which may end on the last day of any month. A fiscal year is an annual accounting period for income tax purposes. Example: February 1 through January 31.
Fiscal Year End (FYE)	The end of a 12 month accounting year.
Five Percent Owner	Any person who owns More than five percent of the outstanding stock of a corporation, Stock possessing more than five percent of the total combined voting power of all stock of a corporation, or More than five percent of the capital or profits interest in a partnership or sole proprietorship. The ownership interests of a member's family are taken into account when determining the percentage owned by the member. Family consists of the member's spouse, children, grandchildren, and parents.
Fixed Annuity	See Annuity.
Fixed Income Investment	Securities, such as government, corporate, or municipal bonds that pay a fixed rate of interest until they mature. Preferred stock also pays a fixed dividend. This type of investment works best in a time of low inflation. However, it does not protect buying power in a time of rising inflation.
Flat	Term used when there are no monies or securities remaining in an account.
Forfeiture	Nonvested accrued benefits or account values lost by terminated employees. In defined benefit plans, forfeitures of allocated values must reduce future employer contributions. In profit sharing and money purchase plans, the plan sponsor may choose to allocate forfeitures among remaining members or use it to reduce employer's contributions to the plan.
Form SS-4	Form used to apply for an Employer Identification Number.
Form W-2	An employee wage and tax statement showing the wages earned and the income tax withheld from a specific employee during any given year.
Form 4-P	A form that a pensioner may submit to change the taxes withheld from benefits.
Form 843	IRS Form used to retrieve withholding taxes from the government.
Form 990-T	Form used to declare taxes on unrelated business income.
Form 1099-R	Statement for recipients of distributions from retirement plans. Trustee must provide to recipient by January 31. Must also file with the IRS by end of February.
Form 1099-SA	Statement for recipients of distributions from Health Savings Accounts (HSAs). Trustee must provide to recipient by January 31. Must also file with the IRS by end of February.
Form 1099-Q	Statement for recipients of distributions from Coverdell Education Savings Accounts (ESAs). Trustee must provide to recipient by January 31. Must also file with the IRS by end of February.
Form 2439	Form issued by Regulated Invest Companies (RIC) showing taxes withheld for undistributed long-term capital gains during the year.
Form 5307	A short form application to IRS to determine qualification for prototype employee benefit plans, other than collectively bargained plans, as defined under Sections 401(a) and 501(a) of the Internal Revenue Code.
Form 5308	An application to IRS requesting a change in the plan/trust year. See Code Section 412(o)(5).
Form 5310	An application for IRS determination upon plan termination. A plan sponsor also uses this form as a notice of merger, consolidation of transfer of plan assets or liabilities, and intent to end the plan. This form applies to plans defined under 401(a) and 6058(b) of the Internal Revenue Code and Section 4041(a) of ERISA.
Form 5329	Form filed with Form 1040 if taxes are due on excess contributions, premature distributions, prohibited transactions, excess distributions, and excess accumulations including failure to take a mandatory distribution. Applies to qualified plans and IRAs.
Form 5498	Trustee must file this form annually with its customers and the IRS prior to May 31. Includes contributions, rollovers, and year-end market value of IRAs. Return to top
Form 5498-ESA	Trustee must file this form annually with its customers and the IRS prior to May 31. Includes contributions and rollovers made to a Coverdell Education Savings Account (ESA).
Form 5498-SA	Trustee must file this form annually with its customers and the IRS prior to May 31. Includes contributions and rollovers made to a Health Savings Account (HSA).
Form 5500	A joint Department of Labor (DOL), Internal Revenue Service (IRS), and PBGC series of forms. A plan administrator of an ERISA regulated benefit plan uses them to file a required annual report. The plan administrator must file it within seven months after the plan year end. (Different attachments apply to these filings, depending on plan type and funding. For example, Schedule A, Schedule B, Schedule C, and Schedule P.)
Form 5558	An application to the IRS for an extension of time for filing certain employee plan returns. A plan sponsor can use it when filing Form 5500.
Form 6088	An attachment to Form 5310. It lists plan member compensation and distributable benefits data. A short form application for IRS determination on an amendment to an employee benefit plan.
Form 8606	Form filed with Form 1040 by an IRA participant who makes nondeductible contributions to the account.
Form 6406	A short form application for IRS determination on an amendment to an employee benefit plan.
Form 8717	A list of the current fees for IRS review. This form must be attached to the employer's filing materials with a check. If the employer forgets to include a check or if the tax filing material is not complete, the IRS will not review the plan.
Firm 8889	Form filed with Form 1040 by an HSA participant who had any activity (contributions or distributions) in the HSA during the year.
401(a)	A section of the Internal Revenue Code that spells out many of the basic requirements for a qualified plan.
401(k)	A section of the Internal Revenue Code that spells out many of the basic requirements for a 401(k) qualified plan.
401(k) Plan	A defined contribution plan established by an employer that enables employees to make pre tax contributions through salary reduction agreements.
402(f) Notice	The written explanation of the tax effects of distributions from qualified plans regarding the rollover option, the tax consequences of not making a rollover, and, if applicable, any special tax elections available. The notice must be provided to all participants eligible to receive distributions.
402(g) Limit	Internal Revenue Code section that limits salary deferrals amounts annually. The limit for the 2005 tax year is $14,000. (This limit is indexed.)
403(b) Plan	A tax sheltered annuity plan established by certain tax exempt organizations and public schools (501(c)(3) organizations) for their employees. Only annuities sold through insurance companies are allowed as investments.
403(b)(7) Plan	A tax sheltered account established by employees of certain tax-exempt organizations and public schools. Only mutual funds held in custodial accounts are allowed as investments.
414(h)	A provision in the Internal Revenue Code that allows governmental units to sponsor payroll deduction programs that make employee contributions on behalf of the employees.
415 Limits	Yearly limits on the amount of money contributed to a pension plan on behalf of an individual. The Internal Revenue Service sets this limit in Code Section 415. Plans and individuals need to comply with these limits to maintain qualified status. Benefits to a defined contribution plan are limited to the lesser of 100% of compensation or $40,000 (indexed).
457 Plan	An unfunded, deferred compensation plan for state and local governments. In certain situations, a tax exempt organization can use a 457 plan. This plan remains subject only to the rules under Internal Revenue Code Section 457.
501(c)(3) Organization	An organization listed under Section 501(c)(3) of the IRS code. It includes certain religious, educational, and charitable organizations.
Front End Load	This term probably originated in the mutual fund industry. The "front end load" covers sales expense and sometimes other expenses. It refers to deductions from a customer's deposit before crediting the account.
Frozen Plans	A plan under which all of the following occurs on a specified date: Employees no longer accrue benefits. No new members enter the plan. The plan preserves benefits for members before this date. Employers often choose to "freeze" a plan before termination. Frozen plans still need to comply with all laws until the plan terminates.
Full Time Employee	A term used in retirement plans before ERISA. Most employers used their own definition of a full time employee. ERISA standardized the definition of full time employee. Now ERISA allows only one way for an employer to discern between a full time and part time employee for the purpose of excluding part time employees from a pension plan. The definition refers to the number of hours worked by an employee (not to exceed 1,000) during one year of employment (the year in question running from employment anniversary to employment anniversary).
Full Vesting	A form of immediate or deferred vesting under which all accrued benefits of a participant become vested benefits.
Fully Funded	A plan is fully funded if the plan maintains enough assets to make all payments due at particular times. This is especially true for defined benefit plans.
Funded Plan	A plan for which assets have been set aside for the exclusive benefit of employees participating in the plan. These assets are not subject to the claims of the employer's creditors.
Funding Agent	An organization (such as an insurance company) that provides a method for gathering and growing assets to use for retirement plan benefit payments.
FUTA	An acronym standing for Federal Unemployment Tax Act.
FUND/SERV (Fund Settlement, Entry, Registration, and Verification)	A system that automates mutual fund financial transaction specifically, the purchasing, exchange, redemption, and settlement of mutual fund shares. Most large dealers participate in FUND/SERV, which is run by the National Securities Clearing Corporation. Return to top
-G-
GATT	See General Agreement on Trade and Tariffs
General Agreement on Trade and Tariffs	Stipulated that the monthly average of the 30-year Treasury yield rate (GATT Rate) be used to determine the minimum present value of a defined benefit lump sum distribution.
GNMA	Stands for "Government National Mortgage Association" - an investment based on mortgages held by the U.S. Government. Commonly referred to as "Ginnie-Mae."
Government Plan	A retirement plan established for employees of the United States Government, a state government or political subdivision thereof, or by any agency of these. A governmental plan also includes any plan subject to the Railroad Retirement Act of 1935 or 1937 and any plan maintained by an international organization that is exempt from taxation under the International Organizations Immunities Act. These plans do not fall under ERISA. However, governmental plans must follow Internal Revenue Code requirements. They do not need to meet all the requirements that apply to nongovernmental or nonelecting church plans. Section 401(a) of the IRC lists the requirements that do and do not apply to governmental plans.
Government Securities	Securities issued by a government to raise the funds necessary to pay for its expenses.
Graded Vesting	A form of deferred vesting. With graded vesting, an increasing part of a member's accrued benefit becomes vested in accordance with a specific formula and requirements. Requirements usually include terms of attained age, years of service, and/or plan membership.
Grantor	A person who transfers property rights by means of a trust instrument or some other document. For example, a person who establishes an IRA is the grantor.
Group Insurance	A very general term referring to insurance covering a group of people. This contrasts with insurance on one person under an individual insurance contract. Employees of a single employer would typify such a group. Group insurance could include life insurance, group annuity, group accident and health insurance, etc.
GUST	Beginning in 1994, legislative acts made numerous changes to the rules governing qualified retirement plans. The IRS mandated that all plans be restated to comply with these new laws, which are collectively known by the acronym GUST. The five laws included in GUST are: General Agreement on Trade and Tariffs (GATT) Uniformed Services Employment and Reemployment Rights Act of 1996 (SBJPA) Small Business Job Protection Act of 1996 Taxpayer Relief Act of 1997 (TRA 97) Restructuring and Reform Act of 1998 All prototype plans must be amended for GUST by the last day of the plan year that began in 2001 or the last day of the 12-month period beginning on the date the IRS issued the opinion letter for the restated document. All individually designed plans must be amended by the last day of the plan year that began in 2001. Return to top
-H-
Hardship Withdrawal	A plan provision that allows a participant to make a withdrawal of contributions upon proof of certain hardships. Different rules apply depending on what year's contributions are withdrawn.
Health Savings Account (HSA)	Savings arrangements for individuals covered by high deductible health insurance plans to pay for current and future medical expenses. HSAs were created by the Medicare Prescription Improvement and Modernization Act of 2003 and became effective January 1, 2004.
Highly Compensated Employee	A employee is an HCE who: At any time during the current or prior year the employee was a 55% owner or Earned $90,000 (indexed) in the prior plan year (An alternative definition of an HCE may be available, check the plan document.)
Home Office	The headquarters of a dealer firm, investment firm, or other distributor. It is also called a back office or operations area.
Hour of Service	An hour of service is the basic unit of measurement of an employee's service. An hour of service is credited for each hour an employee is paid or is entitled to be paid: For performing duties for the employer. This includes regular time and overtime. For a period of time during which the employee performs no duties for the employer. This period consists of any combination of vacation, holiday, illness, incapacity, layoff, jury duty, military duty, or leave of absence. The hours method uses hours of service to determine if a member has a year of service. The elapsed time method uses hours of service to determine when a period of service starts and when a severance period stops.
House Account	An account in the name of the dealer instead of the customer. Generally, such accounts hold shares for several customers. The dealer keeps track of each customer's subaccount. It is also called a street account or street name account.
HR-10 Plan	Congress initially created the HR-10 program in 1962 through a bill labeled HR-10. The HR refers to the House of Representatives and all bills from the house receive the numbering HR- #. Also known as the Keogh Act (named for the congressman sponsoring the bill) it allows self-employed persons to set up a qualified retirement plan with tax advantages similar to those for corporate employees. These terms, although sometimes used, are obsolete. With many changes in the laws, these plans are now known as defined contribution plans.
HSA	See Health Savings Account Return to top
-I-
Incidental Death Benefit	A qualified plan must primarily provide retirement benefits. Any death benefits are entirely "incidental." Two separate rules determine an incidental death benefit. One rule limits benefits other than retirement benefits under qualified plans and the other is the minimum distribution rule (IRC Sec. 401(a)(9).
Indemnify	To protect or insure against liabilities incurred by actions taken. When you indemnify someone you are stating that if the person is held liable for something, you will assume the liability.
Individual Annuity	A contract under which an insurance company pays an individual a specified annuity. Two main types of individual annuities exist: the retirement annuity policy and the retirement income policy. When used for pension plans, a trust usually holds the policies in trust until the employee retires. Used for a number of covered employees too small to permit the use of group annuities.
Individual 401(k) Plan	An Individual 401(k) plan is a 401(k) plan and service package for partners who won more than 5% of the capital interests or profits of a business and spouses whom they employ.
Individual Retirement Account (IRA)	Personal savings plan that offers tax advantages to individuals who set aside money for retirement.
Insurance	The contracted service that exists when one party, for a consideration, agrees to reimburse another for loss caused by designated contingencies. The first party is called the insurer; the second, the insured; the contract, the insurance policy; the consideration, the premium; the property in question, the risk; and the contingency in question, the hazard or peril.
Integrated Plan	A plan that builds retirement benefits according to an approved Treasury Department formula. It considers a person's expected income from social security in figuring benefits. The law sets guidelines for integrated plans to make sure they work with social security and provide benefits free of favored treatment. Since so many types of integrated plans exist, the plan formula may differ for each integrated plan.
Integration Level	The compensation level at or below which the rate of benefits or contributions provided by a plan's formula is smaller than the rate that applies to compensation above that level.
Interest	A payment for the use of money. Bonds and savings accounts are the most common investment vehicles for the payment of interest. Also, most loans require the payment of interest for use of the principal amount.
Interested Parties	This generally refers to all employees of a plan sponsor. The IRS requires an employer to notify all interested parties when it applies for a determination letter or adopts a standardized prototype plan (in which no qualification is required).
Internal Revenue Code (IRC)	Congress created the code. It sets out laws on income tax, estate tax, and gift tax (also social security tax, unemployment tax, alcohol, tobacco, and miscellaneous regulatory taxes).
Internal Revenue Service (IRS)	The agency of the U.S. Department of the Treasury that collects taxes and enforces tax laws. They call money collected by the agency "Internal Revenue" because it came from sources within the U.S.
IRA	See Individual Retirement Account.
IRA Application	The application, which is submitted for the purpose of establishing an Individual Retirement Account.
IRC	See Internal Revenue Code.
IRS	See Internal Revenue Service.
Irrevocable Beneficiary	A beneficiary that cannot be changed. The owner relinquishes the right to change the beneficiary designation by naming this type of beneficiary.
Irrevocable Trust	A living trust that can't be terminated by the grantor.
ISDRP	Individual Self-Directed Retirement Plan. Refers to a defined contribution plan.
ISERP	Individual Self-Employed Retirement Plan. Refers to a defined contribution plan. Return to top
-J-
J & S	See Joint and Survivor Annuity.
Joint and Survivor Annuity (J & S)	An annuity in which an employee may elect to receive, under certain conditions, a reduced amount. The employee receives a reduced amount because all, or a specified part, of the annuity continues after death to a contingent annuitant. For a married participant, the contingent annuitant must be the spouse, unless the spouse signs a waiver. ERISA made this annuity mandatory for all married retirement plan participants.
Journal	Transfer of monies or securities from one brokerage account to another without the owner taking receipt of the assets.
Julian Date	Assigned numbers given to the calendar days. For example, January 1 is 001 and December 31 is 365 (except in leap year when it is 366). Return to top
-K-
K-1	Annual report issued by limited partnerships to report income.
K Test	See Actual Deferral Percentage Test.
Keogh Plan	Another name for HR-10 plan. Keogh simply refers to the name of the congressman who sponsored the bill that created this type of plan in 1962. A Keogh Plan provides retirement benefits for self-employed persons, with tax advantages similar to those for corporate employees.
Key Employee	A classification of employee, which must be identified in order to determine the top-heavy status of a plan. In general, a key employee is any employee who, during the determination period, was: An officer of the employer having annual compensation greater than $130,000 (potentially indexed for COLA increases in $5,000 increments), A five percent owner of the company, or A one-percent owner of the company with annual compensation over $150,000. The determination period is the year (almost always the plan year) containing the determination date and the four preceding years. The Internal Revenue Code limits the number of employees that must be counted as key employees. Return to top
-L-
Late Retirement Date (LRD)	The date a participant actually retires after passing the normal retirement date.
Leased Employee	An individual who: Provides services to a recipient under one or more agreements with a leasing agency. Performs services for the recipient (or related employer) on substantially a full-time basis for at least one year. Performs services under the primary direction or control of the recipient employer.
Legal Title	The ownership of property as recognized by law.
Letter of Acceptance	A document that states that one firm will accept trusteeship of assets from another trustee.
Letter of Determination	Letter issued by the District Office of the IRS stating that an individual plan does or does not meet the requirements for qualification.
Letter of Indemnification	A letter which removes any and all liability from the party acting on the instructions contained in the letter.
Letter Ruling	A private ruling issued by the IRS addressing a particular tax situation for an individual. Only this individual can rely on the ruling. It does, however, give an indication of the IRS's current position toward a particular situation.
Letter Testamentary	A court document that authorizes the executor named in a will to act on an account.
Leveraged ESOP	An Employee Stock Ownership Plan that borrows to acquire employer company stock.
Liabilities	In general, all claims against an entity. Liabilities include items such as accounts payable, wages, expenses, and taxes payable.
Life Annuity	See Optional Forms of Income.
Life Expectancy	The number of years an individual expects to live based on current age. Used to determine the amount of a mandatory distribution.
Limited Liability Company (LLC)	A cross between a limited partnership and group trust. Owners and managers receive the limited liability and usually the tax benefits of an S corporation without having to conform to S Corporation restrictions.
Limited Partnership (LP)	Form of business organization in which there are two classes of partners, one or more general partners, who manage the enterprise and can be held generally liable should the business fail, and limited partners, who own shares in the business and are liable only to the extent of their investment.
Limitation Year	A 12-month period elected by the employer and adopted by a written resolution. The limitation year sets a time period in which benefits or counterpanes may not exceed limits set by Code Section 415.
Lineal Descendent	A person in the direct line of descent such as child or grandchild.
Liquidate	To sell or convert to cash an asset which is held within an account.
Liquidity	The ability to convert assets into cash or cash equivalents without significant loss. Each investment account has a different level or liquidity. When an account can easily convert investments into cash, it operates with a higher level of liquidity.
Load	A sales charge for purchasing or selling shares of a mutual fund or an investment company, may be charged at the front end when the shares are bought, at the back end when the shares are sold, or on a level basis throughout the life of the investment.
Loan	Many plans (especially 401(k) plans) allow loans. The Tax Reform Act of 1986 changed many loan requirements, but plan sponsors may make plan loans to members and beneficiaries as long as certain requirements are met. To meet the requirements a loan must: Be available to all members and beneficiaries on a reasonably equivalent basis, Bear a reasonable rate of interest, Be adequately secured, Be made in accordance with specific loan provisions in the plan, and Not be offered in greater amounts to highly compensated employees. In further detail, the plan must: Make loans available to all parties in interest. This usually includes active employees and excludes inactive members (such as vested terminated employees) and beneficiaries. Use a prevailing interest rate charged by commercial lending institution, Use no more than 50% of a member's vested account balance as security for a loan, and Spell out specific provisions about the loan program. Additional restrictions may vary from plan to plan.
Long	Signifies full ownership of securities. An asset held "long" in an account means that the owner paid for the investment in full.
LPI	See Limited Partnership IRA.
Lump Sum	A lump sum distribution is the payout of an employee's entire account balance within one taxable year as a result of separation from service, attainment of age 59 1/2, death, or disability. Return to top
-M-
M Test	See Actual Contribution Percentage Test.
Mandatory Distribution
Margin	The amount paid by the customer when he uses his broker's credit to buy a security.
Market Value	The actual cash value of an investment (such as a stock or bond) if sold at a certain point in time.
Master Plan (MP)	A basic form of retirement plan, with or without a trust, administered by an insurance company or bank acting as the funding medium for purposes of providing benefits on a standardized basis.
Matching Contributions	Contributions made by an employer to a plan on an employee's behalf when the employee makes elective or non-elective contributions.
Maturity Date	The date on which the principal amount of a note, draft, acceptance, bond, or other debt instrument becomes due and payable. It is also the termination or due date for paying an installment loan in full.
Member	Also referred to as "participant." A member may be active or inactive. Active member - an employee covered under a group retirement plan. Inactive member - an employee or former employee who becomes eligible to receive benefits under a group retirement plan.
Minimum Fund Standard Account	Minimum funding standard account is an account maintained for a defined benefit, money purchase, or target benefit pension plan for keeping track of the plan's liabilities and credits. If the account shows a deficiency (excess of liabilities over credits), an excise tax applies to that amount.
Minimum Funding Standard	The minimum amount an employer must contribute to a qualified defined benefit, money purchase, or annuity plan. The minimum funding standard is not a qualification requirement.
Money Market Account	Interest bearing cash fund, usually a mutual fund. The price is usually $1 per share.
Money Purchase Pension Plan	A money purchase plan is a defined contribution plan that accumulates a specific amount of employer contributions for each plan member (e.g., 5% of salary) during the working career of an employee. At retirement the member may use the accumulated money to buy a retirement annuity income. This type of retirement plan uses the accumulated amount of money contributed to determine the plan benefit payable (versus a defined benefit plan style that states the benefit amount a member receives). The length of the accumulation period, the contribution level, and investment performance determine the amount of benefit payable.
Multi-Employer Plan	A plan maintained pursuant to a collective bargaining agreement to which two or more employers contribute. Employer contributions must be set forth in the labor agreement. Within one year of enactment, a plan may irrevocably elect not to be treated as a multi-employer plan if it was categorized as a single employer plan for each of the last three years ending before September 26, 1980. (The effective date of the Multi-Employer Pension Plan Amendments Act of 1980.)
Multiple Employer Plan	A plan benefiting employees of nonrelated employers where such employees are not covered under a collective bargaining agreement. Contributions from the individual employers are available to pay benefits to all participants of all the employers.
Mutual Company	A life insurance company with no stockholders. Policyholders own a mutual company. Any earnings in excess of those necessary for the operation of the company are returned to the policyholders in the form of policy dividends.
Mutual Fund	An open-end or closed-end investment company which buys, sells, and holds securities and obligations of corporations, government and municipalities as its sole business activity. Open-end refers to the fact that the fund has no limit on the number of shares it may issue. Closed-end means the company issues a limited number of shares. Return to top
-N-
NASD	See National Association of Securities Dealers.
National Association of Securities Dealers (NASD)	A voluntary organization of brokers and securities dealers handling over-the-counter securities. It serves a quasi-official function in the regulation of the licensing of such brokers and dealers and their representatives.
National Securities Clearing Corporation (NSCC)	The nation's largest registered securities clearing corporation. It provides clearing support services covering trade processing, delivery, and settlement to dealers, banks, and mutual funds in the U.S. and Canada.
Net	Remaining when nothing more is to be taken away, as in Net Asset Value.
Net Asset Value (NAV)	The market value of one share of a mutual fund. The NAV is calculated daily by taking the fund's total assets, subtracting the funds liabilities, and dividing by the number of shares outstanding.
Network Account	An account that is coded to report information through the NSCC to its dealers on transactions, clerical changes, and balances, and to receive certain transactions from the dealer. Certain networked accounts can be accessed directly by the dealer.
Networking	A system used by large dealer firms to transmit clerical changes and receive historical data on individual accounts. Dealers may generate reports from the received data in their own offices. Networking is coordinated by the National Securities Clearing Corporation.
New Comparability Plan	A profit sharing or money purchase plan in which the allocation of the contribution for one category of participants is greater that the allocation for other categories of participants. The plan must be tested under cross-testing rules to satisfy nondiscrimination requirements.
New Issue	An issue of securities offered to the public for the first time. It may be an Initial Public Offering from a company that previously was privately owned or an additional issue by a company already publicly owned.
No Load Fund	A mutual fund charging little or no commission (load charge) to the buyer of its shares. No sales organization is involved. The sponsoring firm sells shares directly to the public.
Nominee	A person or organization in whose name a security is registered though true ownership is held by another party. The purpose is to simplify and expedite securities transactions.
Non Depository Trust Company	No deposits are held at the trust company. All plan assets are held in an investment account that is registered in the name of the trustee (such as a brokerage account or mutual fund). A non-depository trust company does not engage in any form of commercial banking.
Non Deductible Contribution	A contribution made to an account for which a deduction is not taken.
Non Discrimination Test	A series of requirements a plan needs to meet for qualification purposes. This test helps prevent discrimination, such as benefits favoring highly paid employees.
Non Elective Contributions	Contributions made by an employer to a cash or deferred arrangement that the employee does not have to elect to receive. This includes a profit sharing or money purchase contribution.
Non Forfeitable	The part of an account or benefit that belongs to a member usually acquired through a vesting schedule. The nonforfeitable part belongs to the member and cannot be taken away regardless of employment status.
Non Integrated	A plan that does not use social security benefits or contributions to offset the contribution to the plan. The company will contribute an amount based on compensation for each employee.
Non Key Employee	Any employee who is not a key employee. The beneficiary of a deceased employee is treated as a non-key employee if the: Employee was a non-key employee before death, and Beneficiary is not a key employee.
Non Qualified Deferred Compensation Plan	This term can apply to the entire nonqualified plan arena in general or to a specific salary reduction plan.
Non Recalculation	Method used to determine life expectancy for mandatory distribution requirements. The life expectancy of the account holder and/or beneficiary is adjusted by one each year to determine the life expectancy factor.
Normal Retirement Age	The age at which a participant attains retirement age under the plan.
Normal Retirement Date	The date a participant receives the full amount of the accrued benefits. The plan usually determines the normal retirement date as the date the member reaches "normal retirement age."
Notary Public	Public officers who attest to the authenticity of signatures on a document under their official seal.