A

Active Participants
Eligible individuals who have hours of service and make contributions to a retirement plan.

Actual Contribution Percentage (ACP)
One of the calculations performed when testing 401(k) plans for nondiscrimination. It is the average of the ratios of aggregate contributions (employer matching and employee after-tax contributions) to compensation. It is figured for two groups separately: highly compensated employees and non-highly compensated employees. The ratio for each employee is calculated, and then it is averaged for the group.

Actual Deferral Percentage (ADP)
One of the calculations performed when testing 401(k) plans for nondiscrimination. It is the average of the ratios of elective contributions (employee pre-tax deferrals) to compensation. It is figured for two groups separately: highly compensated employees and non-highly compensated employees. The ratio for each employee is calculated, and then it is averaged for the group.

Additional Voluntary Contribution
A contribution to an employer-sponsored retirement plan with money that has already been taxed. Not all retirement plans allow this type of contribution. There may be fewer restrictions on early withdrawals of after-tax contributions.

Adjusted Gross Income (AGI)
The amount of income that is subject to federal income tax. Contributions to employer-sponsored retirement plans or deductible traditional IRAs reduce your adjusted gross income, thereby reducing your tax burden.

Adjusted Service Date
The date used to count service towards eligibility and vesting if a rehired participant with a break in service is given credit for prior services.

Administrator/Plan Administrator
The person or entity charged with the responsibility of administering the terms (provisions) of the plan.

Adoption Agreement
In a prototype plan, the part containing the options from which an employer may choose. Options include choices in participation requirements, vesting schedules and allocation formulas.

Affiliated Service Group
A group of two or more related organizations that are treated, for various employee benefit requirements, as a single employer. Employees of these affiliates are treated as though they are employed by a single employer to determine plan qualification.

After-Tax Contributions
A contribution to an employer-sponsored retirement plan or IRA with money that has already been taxed. Not all employer-sponsored retirement plans allow this type of contribution. There may be fewer restrictions on early withdrawals of after-tax contributions. Roth IRAs and non-deductible Traditional IRAs only allow after-tax contributions.

After-Tax Withdrawal
Distribution of funds that were made on an after-tax basis.

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
Plan in which contributions are allocated to participants on a basis that considers both age and compensation.

Aggressive Growth Fund
A type of mutual fund that invests in less-established companies and takes on a high level of investment risk with the aim of achieving high growth (increases in prices of stocks in the fund). Compare to fixed-income or value funds.

Alienation
Assignment of benefits; the voluntary partition of a participant's vested account balance between a participant and spouse in a qualified domestic relations order. With that single exception, ERISA generally prohibits alienation of a participant's benefits, including bankruptcy circumstances.

Allocation
Distribution of your investment funds among different investment categories, called asset classes (stocks, bonds, etc.). See asset allocation.

Alternate Payee
Someone, other than the participant, who is receiving a payment under the plan. Under a Qualified Domestic Relations Order, the person who the court orders to receive a portion of a participant's account.

Amendment
Changes made to an existing plan.

Annual Addition
Under a profit-sharing plan, and other plans that use individual account balances, it is the contribution made to a participant's account. An annual addition includes employer and employee (participant) contributions, and forfeitures under a formula provided by federal law.

Annual Gross Payroll
Total payroll amount of the plan sponsor as of its most recent plan year-end.

Annual Plan Contributions
Total assets contributed to the plan - both participant and employer contributions - as of the most recent plan year-end.

Annual Report (Employee Benefit Plans)
The employee or plan administrator is required to file an annual information return with the IRS regarding the qualification, financial condition and operations of any funded deferred compensation plan.

Annualized Return
The return on an investment, converted to a yearly rate. For example, a mutual fund that had a 10 percent annualized return over the last five years would have returned an average of 10 percent each year on the original investment, even if actual returns varied from year to year. Annualized return may or may not reflect compounding.

Annuity
A contract, usually with an insurance company, that guarantees the investor or "annuitant" a fixed payment at least equal to her original investment. Most annuities are paid out at retirement. Fixed annuities guarantee a certain payment amount, while the payout for variable annuities depends on how the money is invested by the individual. Contributions to an annuity are made after taxes, but all capital in the annuity grows tax-deferred, similar to employer-sponsored retirement plans or IRAs.

Annuity Period
The time during which annuity assets are sold to make payments to annuitants, or investors. Also referred to as the payout or liquidation period.

Appreciation
The increase in value of an asset.

Asset
Money, or something worth real money, held by an individual or a company. Examples include cash in a bank account, stocks, bonds, mutual funds, retirement accounts and real estate.

Asset Allocation
The division of assets among different types of investments (called asset classes) such as stocks, bonds, cash and so on, in order to reduce your investment risk, while reducing portfolio volatility.

Asset Class
A way of categorizing investments. Stocks, bonds, real estate and cash are all asset classes. They can also be divided further into subtypes, such as large-cap stocks, small-cap stocks, corporate bonds, high-yield bonds, etc. Categorizing investments by asset class helps investors determine whether their holdings are diversified.

Audit
To examine with the intent to verify.

Auditor
A certified public accountant who examines a company's books according to a set of procedures and issues a report.

Automated Clearing House (ACH)
Establishment responsible for the electronic transfer of assets between financial institutions.

Automatic Enrollment
Eligible employees are automatically enrolled in the plan at a predetermined salary deferral percentage, which they can change before enrollment in the plan or after. Participants can opt out of automatic enrollment if they so choose.

Automatic Investment Plan
A program that allows an individual to have a set amount electronically transferred from one account to another at a specified time, such as with a 401(k) or other defined contribution plan.

Automatic Reinvestment Plan
An arrangement in which mutual fund dividends or capital gains are used to purchase additional shares, rather than being distributed to the investor.

B

Backdating
Permitting a mutual fund shareholder to use previous purchases of a fund's shares to qualify for reduced commission charges on subsequent purchases.

Balanced Fund
A type of mutual fund that spreads its investments among stocks and bonds. Essentially, a balanced fund is a middle-of-the road fund that balances its portfolio to achieve both moderate income and moderate capital growth.

Basic Contributions
That portion of the employee contributions to which a company match contribution is assessed.

Basis Point
A value equaling one one-hundredth of a percent (1/100 of 1 percent). Commonly expressed as 0.01. Basis points are often used to compare bond values or interest rates. Basis points are also used to describe mutual fund management fees. If you invested $1,000 in a fund with a management fee of 150 basis points, 1.5 percent - or $15.00 - of your investment would go toward operating expenses.

Before-Tax Earned Income
Income earned from your employment before you pay your taxes. Includes salaries, commissions, wages, tips, self-employment income - any income that does not come from your savings and investments (that is called unearned income).

Benchmark
A standard against which something is measured. For mutual fund investing, a benchmark is a group of securities that are similar or identical to the ones in the fund. Many benchmarks are indexes, like the S&P 500, Russell 2000, or NASDAQ Composite. To properly assess a mutual fund's performance, you need to compare it against the appropriate benchmark.

Beneficiary
Person named by the participant to receive any benefits provided by the plan if the participant dies.

Beta
A coefficient measuring a stock's relative volatility to a market index, such as the S&P 500 Index. A manager with a Beta greater than 1.0 is more volatile than the market, while a manager with a Beta less than 1.0 is less volatile than the market.

Blackout
A period of time during which participants are not allowed to make changes to their 401(k) balances. This generally occurs during a conversion to a new recordkeeper, or when significant changes are being made to the plan. The blackout gives the providers time to test and validate the new platform and/or provisions.

Break in Service
Under ERISA, a calendar year or other 12 consecutive month period designated by the plan during which a plan participant does not complete more than 500 hours of service. When a break in service occurs, the participant must again meet the plan's eligibility requirements to participate.

Brokerage Window Account
An investment option offered by some employer-sponsored retirement plans (like 401(k), 403(b) and 457 deferred-compensation plans) to give participants more investing flexibility. A brokerage window allows the participant to invest retirement contributions in mutual funds, individual stocks and/or bonds that are outside the set options offered by the plan. Some plans restrict the brokerage window to a certain percentage of the participant's balance, or to a certain type of investment, such as only mutual funds. Participants often pay an annual maintenance fee for the brokerage window, as well as trading commissions. Also known as a self-directed account.

Buy-Back Provision
When terminating employees who are no more than 50% vested withdraw their own contributions and the employer cancels the remainder of the benefits, this arrangement allows the employees to buy back the forfeited employer contributions by repaying the withdrawn amounts.

C

Cafeteria Plan
A tax qualified arrangement under which participants may elect a combination of various taxable and tax-preferred forms of compensation, often including but not limited to cash, health insurance, 401(k) plan contributions, life insurance, child care, and additional vacation days. Also called a flexible benefit plan or Section 125 plan after the section of the tax code that allows for the creation of flexible benefit plans.

Capital Accumulation Plan
An employer-sponsored pan in which contributions are made to participants' individual accounts (a defined contribution account). In U.S. Bureau of Labor Statistics data, it refers to a plan in which employer contributions may be withdrawn at the participant's discretion prior to retirement, death, disability, separation from service, age 59½, or hardship (a defined contribution style arrangement that is not a qualified retirement plan).

Capital Gain
Profit on the sale of an asset or investment. A realized capital gain occurs when the sale actually takes place, whereas an unrealized capital gain occurs when an investment isn't sold, but would create a profit if it were sold.

Capital Gains Distribution
Payment to mutual fund shareholders based on gains from the sale of securities in the fund's portfolio.

Carryover of Contribution
Created whenever the employer's contribution for a given year exceeded the maximum allowable deductions for that year. Allows employers to make larger contributions in earlier, more profitable years.

Carryover of Deduction
Credit that occurs when the employer's contribution for the year was less than the maximum allowable deduction of 15% covered compensation. It enables employers to take a larger tax deduction.

Cash or Deferred Arrangement (CODA)
Section 401(k) of the Internal Revenue Code allows employers to offer employees a choice between receiving compensation and having a contribution made on their behalf to a qualified plan.

Cash Dividend
Dividend paid in cash to holders of a firm's stock.

Cash-Out
Distribution.

Cash Up Payment
An extra payment a participant must receive if he/she has not taken the minimum required distribution prior to the required beginning date as dictated for participants who are over age 70½.

Catch-Up Provision
A provision that allows some participants who are nearing retirement to make contributions above the usual annual limit if they have not maximized their contributions in earlier years. Not all participants qualify to make catch-up contributions.

Certified Financial Planner (CFP)
A professional financial planner who has completed a series of courses and passed examinations in subjects like insurance, securities, and taxation. The Financial Planning Association awards this designation after the planner has achieved a certain level of experience in the field (usually 3-5 years). CFPs typically work directly with consumers.

Certified Public Accountant (CPA)
An accountant who has passed an extensive series of examinations and coursework to receive state certification.

Chartered Financial Analyst (CFA)
A financial analyst who has passed three levels of examinations covering economics, security analysis, portfolio management, financial accounting, and standards of conduct. This designation is conferred by the Association for Investment Management and Research. Analysts typically do not deal directly with consumers.

Chartered Financial Consultant (ChFC)
A professional financial planner who has completed a series of courses and examinations in economics, insurance, real estate, and tax shelters. The American College in Bryn Mawr, PA, awards the designation.

Cliff Vesting
A description for a vesting schedule for employer-matching contributions to a retirement account, in which the employee owns no part of the matching contribution until a certain amount of time passes. For instance, with a "three-year cliff" schedule, any matching contribution will become your property after you have been with the company for three years. During this period, your company invests your money in the same way as your own contributions. In 2001, a cliff-vesting schedule cannot exceed five years, but as of Jan. 1, 2002, that maximum will be reduced to three years.

Clone Fund
A mutual fund created to mimic the investment strategy of a successful existing fund. Sometimes clone funds are created because managers feel the original fund's performance is hindered by its size. For instance, large funds often have trouble buying or selling stock of small companies or companies that have trading volume limits, because the large fund would need to buy or sell over the limit in order for the transaction to have an impact on its performance. The smaller clone fund will have the same goals as the old, bigger fund, but may buy different securities and have different managers.

Closed-End Investment Company (closed-end mutual fund)
An investment company or mutual fund that issues a limited number of shares and does not redeem those shares in the same way as a typical (open-ended) mutual fund. Like other securities, closed-end mutual funds are traded on stock exchanges. A closed-end fund can trade above or below its net asset value, unlike open-ended mutual funds. Compare to open-ended fund (or mutual fund).

Code
The Internal Revenue Code of 1986 as amended or replaced.

Collectively Bargained Plan
Plans that are established and maintained pursuant to a collective bargaining agreement.

Commission
A fee charged by a broker or agent for transacting a trade of securities or real estate on behalf of a customer.

Common Stock
Stock that has no preference to distributed dividends or other company assets. Common stock usually conveys voting rights to shareholders, who are residual owners of the company. Compare to preferred stock.

Common Stock Fund
A mutual fund that limits its investment to shares of common stocks. Also equity funds, stock funds.

Company Stock
Security in a participant's account which represents the stock of the company-sponsoring plan.

Compensation
The amount of a participant's taxable and nontaxable wages that is considered for purposes of a certain employee benefit requirement.

Complete Discontinuance
Complete plan termination and final distribution of plan assets.

Conduit IRA
An IRA used as a holding tank to keep money from an employer-sponsored retirement plan, such as a 401(k) or 403(b), separate from an IRA that you contribute to annually. If you keep the money from the employer-sponsored plan separate, and don't make any new contributions to it, you retain the possibility of later transferring it to a new employer's retirement plan. For example, say you changed jobs and your new employer did not offer a 401(k). You put your money in a conduit IRA. Three years later you change jobs again and your new employer has a great 401(k). If you haven't made contributions to your conduit IRA, you can roll the entire balance into your new employer's 401(k), if it accepts rollovers. Conduit IRAs can also be used to transfer money from a former employer's 401(k) plan into a new employer's 403(b) plan, since direct rollovers between these plans are not permitted. Conduit IRAs are sometimes referred to as "rollover IRAs."

Consumer Price Index (CPI)
A measure of average prices in the U.S. economy. Calculated monthly by the Bureau of Labor Statistics, it measures inflation (increase in price) or deflation (decrease in price) both countrywide and in specific regions. The index measures the cost for a fixed set of products and services bought by the typical consumer. Used to determine Cost of Living Adjustments.

Contingent Beneficiary
An alternate beneficiary. One whose rights under a contract are dependent upon the death of the original beneficiary or some other contingency.

Contribution
A payment made by an employee or employer to a qualified plan.

Contribution Carry-Over
This is created whenever annual contributions exceed the maximum allowable deductions. This carry-over can be deducted in future years in which contribution payments are less that the maximum deduction.

Contribution Formula
As used in a qualified profit-sharing trust or money purchase pension plan, it is the formula that spells out when and in what amounts the employer will make contributions to the trust.

Contribution Limits
The maximum dollar limit on annual additions (employer contributions, certain employee contributions and forfeitures) for an employee.

Controlled Group
Employees of corporations that are treated as employed by a single employer for plan qualification purposes. Certain tests must be met to qualify as one of the three types of control groups which are: 1) the parent-subsidiary controlled group, 2) the brother-sister controlled group, and 3) the combined group.

Convert/Conversion
The transfer of a plan's recordkeeping function to a new recordkeeper; also known as an install.

Corporate Bond Fund
An investment company (mutual fund) that invests in long-term corporate bonds and passes the income on these securities to its shareholders.

Cross-Tested
A test for qualified plans with respect to the equivalent amount of benefits to determine that the plan does not discriminate in favor of highly compensated employees.

Cost Basis
Basis is the purchase price of any property including improvements or depreciation on that property. Basis is used as a baseline for determining capital gains tax on any investment or property. It is also used to figure tax deductions. Capital gains taxes are figured as a percentage of the amount over basis. For example, imagine that you bought $1,000 worth of mutual fund shares a year ago. You decide to sell those shares and they are now worth $1,200. Your basis is $1,000, the original price of the shares. You will pay capital gains taxes on the $200 that is over the basis. Figuring basis can become complex when you have to include reinvested dividends for a security or multiple appreciations on a piece of property. A different calculation applies to inherited property. The basis for that property is not the original purchase price but the price at the time it was inherited. For example, imagine your uncle bought several shares of Coca-Cola stock for $100 in the 1950s and gave those shares to you when he died last year. At that time, the shares were worth $5,000. Now, those shares have appreciated to $5,400 and you decide to sell them. Your basis for figuring capital gains taxes is $5,000 (not $100). That is, you will pay capital gains on the $400 the stock has appreciated since you owned it (not the $5,300 it appreciated since your uncle first bought it). Same as basis.

Cost of Living Adjustment (COLA)
An annual adjustment to wages or benefits designed to offset a change in purchasing power usually due to inflation. A COLA is made for Social Security Benefits each year, for instance. COLAs are often based on the Consumer Price Index.

Custodial Account
An account established for the safekeeping of plan assets, but with no discretion or responsibility for managing those assets.

Custodian
An organization or entity that holds the securities for an individual or other entity. In the retirement arena, a custodian generally keeps track and holds the securities for a plan. Typically, a custodian is a financial institution, like a trust company, bank, insurance company, mutual fund company, transfer agent or brokerage firm. A custodian is not considered a plan Fiduciary but does provide services to a plan in a fiduciary-like capacity.

Custom Plan Document
A plan written to accommodate the needs of a single employer; always requires filing with the IRS and must be maintained by the employer for regulatory changes.

D

Death Benefit
The payment made to designated beneficiaries upon the death of a participating employee.

Deduction
An expenditure that may be legally used to reduce your income taxes. This is done by subtracting the deductible amount from your total income; the result is a lower "taxable" income on which your taxes are based. Typical deductions include contributions to defined-contribution retirement plans and some traditional IRAs, mortgage interest, unreimbursed business expenses, and charitable contributions. Also called tax deduction.

Deferral
Pre-Tax contributions made to a 401(k) plan.

Deferral Account
The account of a participant who has terminated employment with the company but has delayed receiving the proceeds of the account until a later date.

Deferred Compensation
The portion of the participant's total compensation which has been contributed to the plan.

Deferred Compensation Plan
An employer-sponsored program that allows employees to defer part of their paycheck toward retirement savings and pay taxes later on that income. These plans are generally offered to state and local government public employees or workers at tax-exempt organizations. Those offered to public employees generally operate similar to 401(k) plans, but deferred compensation plans are not subject to ERISA regulations. Also known as 457 plan or deferred comp plan.

Defined Benefit
A defined benefit plan pays benefits based on a specific (defined) formula. The benefit is defined by the terms of the plan. In theory, what you "know" at a given point is the benefits due, based on that formula (though that may be easier said than done). Simplistically, it is what has traditionally been called a "pension" plan. The benefit is generally not expressed as a specific amount, but as a formula used to calculate that benefit. Typically, benefits paid will depend on three factors: age, service, and compensation. Benefits paid may be Social Security benefits, and may or may not be adjusted for subsequent cost-of-living adjustments, based on the terms of your plan. These plans consider years of service by the employee, generally providing greater benefits the longer an employee works for a particular employer.

Defined Contribution
In a defined contribution plan, the amount of the contribution is defined by the plan rather than the benefit. In other words, you "know" how much goes into the plan (or at least the formula for determining it), not the benefits that may eventually be paid out. A defined contribution plan has individual accounts for each participant in the plan, another key difference from defined benefit plans. Also, both employer and/or employees may contribute to a DC plan (employee contributions to defined benefit plans are rare). These contributions are invested at the direction of the employer (as in most profit-sharing plans), the employee (as in 401(k) plans) or according to the plan itself (employee stock ownership plans, or ESOPs). The employee benefits directly from any investment gains in the individual account -- or suffers from any investment loss. There is no "insurance" for these benefits, as there is with defined benefit DB plans.

Deferred Vested
An account that is due to a terminated participant whereby all forfeited monies, if applicable, have been removed from the account.

Defined Contribution Limit
The maximum contributions and additions that an employer may make on behalf of a pension plan participant.

DEFRA
Deficit Reduction Act of 1984.

Department of Labor (DOL)
The federal regulatory agency responsible for administering certain provisions of ERISA. The department issues opinion letters and other pronouncements, and requires certain information forms to be filed.

Determination Letter
Issued by the office of a district director of the IRS, the letter states whether or not the submitted plan meets the qualification requirements under the Internal Revenue Code.

Direct Rollover
A rollover made directly to another qualified plan or an IRA. Direct rollovers are exempt from mandatory tax withholding.

Direct Transfer
A distribution to an employee made in the form of a direct trustee-to-trustee transfer from a qualified retirement plan to an eligible retirement plan.

Directed-Trustee
An organization or entity that provides limited trustee services based on the direction of a plan trustee. In a retirement plan, those services are generally limited to providing audited trust statements and Forms 1099R and 945 reporting services. A directed-trustee is not generally involved in making investment decisions or recommendations for the plan nor do they monitor the plan's assets for conformance with the investment policy statement.

Disability
Inability to pursue an occupation because of physical or mental impairment.

Discretionary Contribution
An employer contribution made to a 401(k) or profit sharing plan that is allocated on the basis of compensation or in some manner other than on the basis of elective contributions.

Discrimination
Discrimination occurs when a plan fails to satisfy one or more Nondiscrimination Rules.

Discrimination Testing
Testing performed pursuant to the Nondiscrimination Rules to ensure that a plan sponsor does not provide retirement benefits to Highly Compensated Employees that are significantly greater than benefits provided to Non Highly Compensated Employees.

Disqualified, Disqualify
Loss of qualified (tax-favored) status by a plan, generally resulting from operation of the plan in a manner that is contrary to the provisions of the plan or that discriminates against rank-and-file employees. A disqualified plan must disgorge its assets, creating tax consequences for both the sponsoring company and participants.

Disqualified Person
A person who, because of his or her relationship with the plan (e.g., as a fiduciary, provider of services, or the plan sponsor) is prohibited from entering into certain transactions with the plan.

Distribution
The benefit paid to a plan participant.

Diversification
A strategy to minimize investment risk by splitting your money among a range of investment options, so that if one investment performs poorly your entire portfolio won't suffer the same fate.

Dividend
A share of a company's net profits distributed by the company to a class of its stockholders.

Domestic Relations Order (DRO)
Judgment, decree, or court order (including approval of a property settlement agreement) made pursuant to a state domestic relations law (including a community property law) that relates to the provision of child support, alimony payments, or marital property rights to an alternate payee.

E

Early Distribution Penalty
A 10% penalty assessed on distributions received from a qualified plan before certain conditions are met (generally before the participant attains age 59 ½).

Early Retirement
Provision made in a retirement plan to allow employees who have met certain conditions, such as length of service and specified age, to retire prior to their regularly scheduled retirement age. In general, in case of such early retirement, the benefits which a participant can expect to receive from the plan will be less than those offered at full retirement age.

Eligibility
Any employee who is eligible to become a participant in a plan pursuant to the terms of the plan document.

Eligibility Date
The date an individual becomes eligible to participate in a plan.

Eligible Employees
Those members of a group who have met the eligibility requirements under the plan.

Emerging Growth Stock
The common stock of a relatively young firm operating in an industry with very good growth prospects. This kind of stock offers unusually high potential returns but it is also very risky because the expected growth may not occur.

Emerging Market Stocks
Stock of companies located in developing nations. Politically and economically, emerging market countries are not considered to have the stability or economic sophistication associated with developed nations.

Employee Retirement Income Security Act (ERISA)
A 1974 act that protects the retirement income of pension fund participants by setting standards for eligibility, performance, investment selection, funding and vesting. ERISA is enforced by the Department of Labor. All 401(k) plans and some 403(b) plans are governed by ERISA. Other 403(b) and all public-employer 457 deferred-compensation plans are not governed by ERISA.

Employee Stock Ownership Plan (ESOP)
A profit-sharing, stock bonus or money purchase pension plan in which the plan assets must be invested primarily in stock of the employer (company stock). An ESOP may borrow from the employer, or use the employer's credit to acquire company stock (a leveraged ESOP).

Employer Match Contribution (also Company Match Contribution)
Contribution made by an employer to a plan on an employee's behalf when the employee makes elective or non-elective contributions.

Enrollment
The process by which an eligible employee becomes a participant in the plan.

Entry Date
The date on which an employee joins the plan. Excess aggregate contribution: The excess of the total amount of employee and matching contributions made on behalf of highly compensated employees (HCEs) in a plan year over the maximum allowed under the ACP test.

ERISA
The Employee Retirement Income Security Act of 1974, as amended. This benefits legislation prescribes minimum standards for private pension plan administration and investment practices. It also created the Pension Benefit Guaranty Corporation (PBGC) that insures defined benefit retirement plans. The following agencies have jurisdiction under ERISA: the IRS for tax qualification issues; the Department of Labor for fiduciary standards and reporting and disclosure; the PPCG for insuring defined benefit plans; and the Justice Department for enforcing criminal violations of ERISA.

Excess Accumulation
During a calendar year, the amount by which an individual's required minimum distribution exceeds the actual amount. Also called an under distribution, it is subject to a tax penalty of 50% of the difference between the year's minimum payment and the payment actually received.

Excess Aggregate Contributions
The amount by which aggregate contributions of Highly Compensated Employees exceed the maximum amount of such contributions allowed under ACP testing.

Excess Contribution
The amount by which elective contributions of Highly Compensated Employees exceed the maximum of the elective contributions allowed under ADP testing.

Excess Deferral
Salary deferral made by a participant which is in excess of the limit allowed per calendar year under Internal Revenue Code section 402(g). The IRS imposes a 15% penalty on the participant unless the excess distribution is a result of death, a QDRO, distribution of non-taxable contributions or amounts that are rolled over within 60 days of distribution.

Exchange-Traded Fund
A stock-like security that follows a specific stock index, like the Dow Jones Industrial Average or the S&P 500, allowing investors to buy and sell the entire index in a single transaction. Similar to index funds, but can be traded in real time, unlike most mutual funds. Exchange-traded funds are regulated by the Securities and Exchange Commission.

Ex-Dividend Date
The first day of trading when the seller, rather than the buyer, of a security will be entitled to the most recently announced dividend payment.

Expense Ratio
The proportion of assets required to pay annual operating expenses and management fees of a mutual fund.

F

401(a) Plan
An employer-sponsored retirement plan that is funded entirely by employer contributions and/or after-tax contributions by the employee. This type of plan can be a defined-benefit plan, such as a pension, or a defined-contribution plan, including money purchase and profit-sharing plans. The name "401(a)" comes from the section of the tax code that allows tax-deferred savings; 401(a) plans allow investors to defer taxes on investments until they withdraw money at retirement. A 401(k) plan is a type of 401(a) plan that lets you make pretax contributions.

401(k) Plan
Employer-sponsored retirement plan that allows employees to contribute part of their salary before taxes and defer paying tax on the contributions and earnings until they withdraw funds at retirement. Employees decide how to invest their contributions among choices usually selected by the employer. It is difficult to withdraw money from a 401(k) plan before age 59½ unless you leave your job. 401(k) plans are governed by ERISA. Specific plans may have stricter rules and limits laid out in the plan document.

403(b) Plan
A defined-contribution retirement plan available to educators, health care workers, employees of religious institutions and nonprofit workers. Also known as tax-sheltered annuities (TSAs) and tax-deferred annuities (TDAs), although not all 403(b)s require annuity investments. A 403(b)(7) plan allows you to invest in mutual funds. Some 403(b) plans for educators and nonprofits are governed by ERISA, but plans for religious institutions are not.

404(c) Regulations
Department of Labor regulations that serve as guidelines for retirement plan fiduciaries. 404(c) regulations are designed to reduce employer liability by transferring the responsibility for investment decisions to the employee. For instance, the regulations suggest that 401(k) plan sponsors should provide at least three distinct investment options with substantially different risk/return objectives. The regulations also ask employers to provide employees with a degree of information about plan features, such as prospectuses of mutual funds offered in the plan. Compliance is voluntary.

415 Limit
Internal Revenue Code section 415 which provides that the total contribution (employee and employer) to all defined contribution plans made on behalf of a participant may not exceed the lesser of 25% of the participant's compensation or $30,000 (as indexed).

415 Testing
Testing performed to insure that participants have not contributed more than is permitted under the 415 limit.

457 Plan
An employer-sponsored program that allows employees to defer part of their paycheck toward retirement savings and pay taxes later on that income. Also known as deferred-compensation or deferred-comp programs, 457 plans are generally offered to state and local government public employees or workers at tax-exempt organizations. Those offered to public employees generally operate similar to 401(k) plans, but 457 plans are not subject to ERISA regulations.

Fact and Circumstances
A test that determines if a participant qualifies for a hardship withdrawal based on his/her circumstances. The participant must prove that the money is not available from any other source, including the reasonable sale of assets, insurance proceeds or commercial loan.

Family of Funds
A group of mutual funds operated by the same investment management (mutual fund) company.

Fiduciary
Under ERISA, generally any person who exercises any discretionary authority or control over the management of a plan or the management or disposition of its assets or renders investment advice for a fee or other compensation with a respect to the funds of a plan, or has the authority to do so or has any discretionary authority or responsibility in the administration of a plan. One who acts in a capacity of trust and who is accountable for whatever actions may be construed by the courts as breaching that trust. Fiduciaries must discharge their duties solely in the interest of the participants and the beneficiaries of an employee benefit plan. In addition, a fiduciary must act exclusively for the purpose of providing benefits to participants and beneficiaries and in defraying reasonable expenses of the plan.

Financial Planner
Investment professional who analyzes an investor's circumstances and prepares a program to meet the investor's financial objectives.

5% Owner
Individual owning more than a 5% interest in an employer in one of the following ways: 1) the stock of a corporate employer, 2) the voting power in stock of a corporate employer or 3) the capital or profits interest of a noncorporate employer. A 5% owner is a key employee under the Tax Code.

Fixed-Income Security
A security, such as a bond or money market instrument, that pays a specific interest rate.

Flexible Benefit Plan
A qualified arrangement under which participants may elect a combination of various taxable and tax-preferred forms of compensation, often including but not limited to cash, health insurance, 401(k) plan contributions, life insurance, child care, and additional vacation days. Also called a cafeteria plan.

Forfeiture
If an employee leaves the service of an organization sponsoring a retirement plan and the employee is not fully vested in those retirement benefits, the amount of money not vested is called a forfeiture.

Form 5300
Form used to apply for an Employee Benefit Plan determination letter.

Form 5307
Form filed with the IRS for employers who adopt a standard plan document of a service provider (also known as a master plan, prototype, regional prototype, or volume submitter plans) filing for a determination letter on the effect of a minor plan amendment.

Form 5500
Form which must be filed with the IRS for each year in which a qualified plan has assets. Form 5500 is filed for plans with 100 or more participants, Form 5500 C or R for those plans with less than 100 participants, and Form 5500 EZ for qualified plans with less than 2 participants. Plans that qualify for Form 5500 C/R must file 5500 Form C for the first year, and every three years thereafter. In intervening years those plans may file Form 5500-R.

Form 1099-R
An IRS tax form detailing and reporting any taxable distribution made to a plan participant.

Frozen Plan
A qualified plan that continues to exist even though employer contributions have been discontinued and benefits are no longer accrued by participants.

Full-Service Broker
A broker who, in addition to executing trades, offers investment advice, asset management, financial planning and other services.

Full Time Employees
Employees of an employer who work for 1000 or more hours in a 12 month period.

Full Vesting
A participant is fully vested in his or her account under a plan when the participant is entitled to receive 100% of the amount of the account at some time in the future.

Fund of Funds
Investment partnership that invests in a series of other funds. Portfolio will typically diversify across a variety of investment managers, investment strategies, and subcategories.

G

Gap Earnings
Earnings calculated to be refunded on excess contributions. It applies to earnings after the end of the plan year for which the refunds apply.

Global Fund
A mutual fund that includes both domestic and foreign securities in its portfolio. Compare to international fund.

Government Plan
A plan established for a state or local government, including a state, a political subdivision of a state, or any agency or instrumentality of either of them.

Graded Vesting
A vesting schedule that calls for partial vesting; 20% is required after 3 years of service. The vesting portion is increased 20% each year until it reaches 100%; this process cannot exceed 7 years.

Graduated Vesting
A vesting schedule that provides for increasing levels of vesting with increasing length of service, until full vesting is achieved.

Gross Earnings
Earnings before taxes are withdrawn and deductions are calculated.

Guaranteed Investment Contract (GIC)
Contracts issued by an insurance company or bank promising a fixed interest rate over a specified period of time. GICs are low-risk investments that generally offer low returns.

H

Hardship Suspension
A suspension of contributions which may be imposed on a participant who takes a hardship withdrawal.

Hardship Withdrawal
A withdrawal of an employee's contributions to a 401(k) plan prior to retirement at age 55 or attainment of age 59½. A hardship may only be made in cases of financial emergency provided there are no other sources available to meet the need; the withdrawal is taxable as an early distribution and subject to a 10% excise tax.

Highly Compensated Employee (HCE)
In general employee who 1) owned more than 5% of the company, 2) received more than $85,000 (indexed) in annual compensation, 3) received more than $50,000 (indexed) in annual compensation (and, if elected by the employer, was in the group consisting of the top 20% of employees based on compensation).

High-Technology Stock
The stock of a company involved in sophisticated technology such as electronics, computer software, robotics or life sciences.

Hour of Service
Each hour for which an employee is paid or entitled to payment for the performance of duties for the employer.

HR-10, HR10, Keogh
A qualified retirement plan that covers a self-employed person (though other employees might also be covered). May include either a defined contribution or a defined benefit plan.

I

Immediate Vesting
That form of vesting under which rights to vested benefits are required by a participant, commencing immediately upon his/her entry into the plan.

Income Fund
A mutual fund whose main objective is to provide consistent income for its owners. Income funds typically purchase bonds, preferred stocks and common stocks that pay high dividends. Compare to growth fund or stock.

Income Stock
A stock with a relatively high dividend yield.

Index
1. A statistical composite that measures changes in the economy or in the financial markets compared with a base year or a previous time period. Indexes are used as benchmarks to measure the performance of securities or markets. Common stock indexes are the S&P 500 and the Dow Jones Industrial Average. The consumer price index is a measure of the economy. 2. To adjust a value based on movement in another value. For example, Social Security benefits are indexed to inflation, so as prices rise, Social Security benefits rise.

Index Fund
A mutual fund that holds a portfolio of securities identical or nearly identical to those comprising a market index, like the S&P 500 in order to match the performance of that index. Index funds are passively-managed - they mirror the holdings and design of the index they track and typically have low administrative expenses and fees.

Individual Enrollment
Eligible employees take action to enroll themselves in the plan and designate their salary deferral percentage at that time.

Individual Retirement Account (IRA)
A retirement savings program for individuals to which yearly tax deductible contributions up to a specified limit can be made if certain requirements are met. Contributions that are tax deductible and earnings are not taxed until withdrawn. Withdrawal is not permitted, without penalty, until the individual reaches age 59½.

Individually Designed Plan
An individually designed (or custom-designed) retirement plan is tailored to meet particular needs. It is based on a legal document drafted specifically to conform with the employer specifications, unlike a prototype plan that only allows for customization within a fixed set of choices.

In Kind Distribution
Distribution from 401(k) account plan whereby the securities are registered in the name of the participant and issued in the form of certificates.

In-Service Distribution
Distribution of retirement benefits received to a plan participant prior to retirement (and, generally, while still employed). Most in-service distributions received before age 59-1/2 will incur an additional 10% tax that applies to distributions from qualified plans, tax-sheltered annuities, and individual retirement accounts.

Installment
A benefit/series of payments made either monthly, quarterly, or annually to a participant. Each payment could be in the form of a set amount, percentage of account balance or calculated based on life expectancy.

Integration
A feature of some qualified retirement plans that coordinates plan benefits or contributions with Social Security. Social Security benefits are progressive, i.e., they replace a greater proportion of pre-retirement earnings for lower earners than for higher earners. To compensate for this benefit tilt, plans may provide proportionately (as a percentage of compensation) higher pension benefits or contributions to higher-paid participants than to lower-paid participants, subject to certain limits. Since the Tax Reform Act of 1986 (TRA 86), integration is referred to as permitted disparity.

Interactive Voice Response (IVR)
Voice response system that provides participant information and allows participants to initiate certain financial transactions and account maintenance via a recorded system which is accessed by telephone.

Interest Rate
The yield over time that interest payments represent. For instance, if you loaned someone $100 for a month and they repaid you $110 when the month ended, you would earn an interest rate of 10 percent.

Intermediate-Term Bonds
Fixed-income securities with maturities generally ranging from three to ten years.

Internal Revenue Services(IRS)
Part of the Treasury Department, the IRS is a government agency charged with the collection of taxes. The income tax code and regulations often affect the procedures and methods of accounting.

International Bond
A bond of any country.

International Fund
A mutual fund that invests only outside the country in which it is located, i.e. an international mutual fund based in the United States would only invest in stocks outside of the United States. Compare to global fund.

Investment Advisor
The individual(s) or organization(s) that provides investment advice to a plan or Plan Participant for a fee. The investment advisor has either discretionary authority with regard to the investments of that plan or participant or with the advice that is relied upon by the participant or plan in making investment decisions as defined in ERISA, Section 3 (21). Typically an investment advisor is not an employee of the Plan Sponsor or the trustee but an independent entity engaged by the plan officials. Retirement plans do not require the use of investment advisors, but when applicable, the advisor becomes a Fiduciary to the plan.

Investment Manager
Individual who is responsible for the selection and allocation of investment securities.

Investment Policy Statement
ERISA requires that all qualified retirement plans invest assets in accordance with a written funding policy; for most retirement plans, this is called an Investment Policy Statement (IPS). This statement specifies how the plan is to be funded, how investment decisions are to be made, and how investments are to be monitored. Today, many plans fail to establish and/or update and comply with their IPS. It is the duty of the trustee and other plan Fiduciaries to establish and ensure compliance with the IPS.

IRC, Code, Internal Revenue Code
Internal Revenue Code of 1986, the basic Federal tax law.

J

Joint and Survivor Annuity
A qualified joint and survivor annuity is an immediate annuity for the life of the participant, with a survivor annuity for the life of the participant's spouse. The amount of the survivor annuity may not be less than 50 percent, nor more than 100 percent, of the amount of the annuity payable during the time that the participant and spouse are both alive.

K

Keogh Plan
A federally approved, defined-contribution retirement program that permits small-business owners and self-employed workers to set aside savings on a tax-deferred basis. Keogh plans have higher savings limits and more administrative requirements than other plans commonly available to these folks.

Key Employee
A participant who, at any time during the plan year or any of the four preceding years, is or was, 1) an officer earning more than 50% of the annual limit on contributions 2) one of the 10 employees earning more than the annual limit and owning the largest interest in the employer 3) a 5% owner of the employer or 4) a 1% owner earning more than $150,000.

L

Large-Cap Fund
A mutual fund that contains large-capitalization (large-cap) stocks. Large-cap stocks are those of big companies with considerable retained earnings and a large amount of common stock outstanding - typically, over $10 billion.

Large-Cap Growth Stock
Stock of a company with large market capitalization (typically over $10 billion) and a growth bias.

Large-Cap Stock
Stock of a company that has consistent earnings (link to term) and a large amount of common stock outstanding, typically with a market capitalization of over $10 billion.

Large-Cap Value Stock
Stock of a company with a large market capitalization (typically over $10 billion) and a value bias.

Leased Employee
An individual who performs services for another person under an arrangement between the recipient of those services and a third person (the leasing organization) who is otherwise treated as the individual's employer. The services performed by an individual for the recipient must be of a type that is historically performed by employees.

Leveling
Means of correcting a failed nondiscrimination test. The highest contribution ratios of the Highly Compensated Employees are reduced until the group percentages fall within acceptable limits.

Life-Cycle Fund
A mutual fund that seeks to tailor its investments to the needs of investors of a specific age group. For example, a life cycle fund for young workers would generally be comprised of aggressive investments but would move into more conservative investments as those workers approached retirement age. These funds are designed so they can function as the only investment in a portfolio and are meant to reduce hassle for the individual investor by handling asset allocation and rebalancing needs. See also profile fund or lifestyle fund.

Life Expectancy
Length of time a person of a given age is expected to live. The period is a statistical average, based on mortality tables showing rate of death at each age.

Lifestyle Fund
A mutual fund that seeks to tailor its investments to an investor's risk tolerance. Lifestyle funds can be based on an investor's chosen risk profile - for example, conservative, moderate or aggressive. These funds are designed so that they function as the only investment in a portfolio and are meant to reduce hassle for the individual investor by handling asset allocation and rebalancing needs. Also called a profile fund.

Load Fund
A mutual fund with fees above and beyond the expense ratio. A load is essentially a sales charge.

Loan
If the plan allows, a participant may take a loan from the plan, using the vested account balance as collateral. These loans may allow a participant to repay the account with a stipulated interest rate, or repayments may be credited to the general assets of the plan. Qualified loans normally provide favorable interest rates for participants (prime + a percent or two), but have many restrictions regarding size and amortization which prevent the loan proceeds from being considered as current income or as an in-service withdrawal.

Loan Default
The converting of a loan balance into a taxable event due to non-payment of the loan.

Loan Delinquency
The status of a loan after a participant misses a payment.

Loan Repayment
Salary reduction contribution that is utilized to repay a portion of the principal and interest amount on an outstanding participant loan.

Long-Term Bonds
Bonds with a maturity over 10 years.

Lump-Sum Distribution
Distribution from a qualified retirement plan of a participant's vested balance within one taxable year. To be considered a qualified lump-sum distribution, it must be made because of the employee's death, attainment of age 59-1/2, separation from service, or disability (if self-employed).

M

Make-Up Match
Company match contribution made to Highly Compensated Employees who have reached their contribution maximum prior to the close of the plan year. It compensates for any amount that would have been matched, but was not, had they spread their match eligible deferral over the course of the plan year.

Managed Account
Investment account that is managed by a professional. Clients of a managed account are typically charged a management fee - usually a percentage of the account's value.

Management Fee
The money paid to the managers of an investment company (mutual fund). This fee covers the manager's salary and the salary of the fund's staff.

Margin Account
Brokerage account that allows the investor to buy securities with money borrowed from the broker.

Matching Contribution
An incentive that employers may offer their employees to encourage them to contribute into a retirement plan. If a company offers a matching contribution, it will generally match part or all of the employee's contribution, up to a certain percentage of salary. Although they are deposited regularly in employees' accounts, matching contributions may not belong to employees right away. In many cases, they vest over time.

Maximum Buyback
The payment of the total amount previously withdrawn from the participant's account in order to restore forfeited amounts.

Minimum Buyback
The repayment of only the matched savings amount previously withdrawn from a participant's account in order to restore forfeited amounts.

Minimum Coverage
Minimum number of employees that must be covered by a plan before it can be tax-qualified. Plan must satisfy either the ratio percentage test or the average benefit test.

Minimum Distribution
The amount of funds a participant is required to withdraw periodically upon attaining age 70½. The initial payment must be taken no later than April 1 of the year following the year in which the participants attains age 70½. The amount is based on life expectancy. Failure to receive a minimum distribution will subject the participant to a 50% penalty on the unpaid amount.

Minimum Funding
Minimum amount that must be contributed by an employer that has a defined benefit, money purchase, or target benefit pension plan. If the employer fails to meet these minimum standards, in the absence of a waiver from the IRS, an excise tax will be imposed on the amount of the deficiency.

Minimum Participation
Must be met by employer in order for the plan to be qualified; plan must benefit at least the lesser of (1) 50 employees, or (2) 40% of all employees. Minimum participation requirements cannot be satisfied by combining plans of an employer.

Money Market Fund
A mutual fund that purchases short-term, high-quality securities, such as Treasury bills, negotiable CDs and commercial paper. Money market funds pay income to shareholders in the form of extra fund shares (usually priced at $1 each), so they function in much the same way as a bank savings account.

Money Purchase
A defined contribution plan under which the employer's contributions are mandatory and are usually based on each participant's compensation. Retirement benefits under the plan are based on the amount in the participant's individual account at retirement.
Multi-Employer Plan
A pension plan, maintained under a collective bargaining agreement, that covers the employees of more than one employer. Generally, the various employers are not financially related but rather are engaged in the same industry.

Multiple Employer Plan
A qualified retirement plan to which more than one employer contributes and that is not the subject of a collective bargaining agreement.

Municipal Bond
Debt issued by a city, county, state or other political entity. Interest paid by most municipal bonds is exempt from federal income tax and often from state and local taxes as well.

Municipal Bond Fund
A mutual fund that invests in municipal bonds and passes through tax-free income to its shareholders.

Mutual Fund
A portfolio of stock, bonds, and/or cash equivalents which is typically actively managed. Open-ended mutual funds are typically actively managed; the portfolio manager buys and sells securities in an attempt to take advantage of current or expected market conditions. Closed-ended mutual funds hold a fixed portfolio of securities. An investment company that pools together funds from individuals and invests those funds into specific securities designed to meet the specific objective of the funds.

N

Named Fiduciary
A fiduciary named in the plan instrument or identified through a procedure set forth in the plan. The named fiduciary has authority to designate others to carry out fiduciary responsibilities.

NAV
Net asset value per share - the market value of a fund share. Equals the closing market value of all securities within a portfolio plus all other assets such as cash, subtracting all liabilities (including fees and expenses), then dividing the result by the total number of shares outstanding.

Net Asset Value (NAV)
The value of a share in a mutual fund. Specifically, the market value of a mutual fund's assets minus any liabilities divided by the number of shares outstanding. This is the value of each share if the fund were to sell all of its assets at current market value and pay off any outstanding debts. NAV is usually calculated at the end of each business day. For closed-end funds, the NAV can differ significantly from the market price.

Net Income
Income after all expenses and taxes have been deducted.

Net Rate of Return
Percentage appreciation from the prior period, after accounting for all fees and expenses.

Net Unrealized Appreciation
The difference between the market value and acquisition cost of a security.

No-Load Fund
Mutual fund whose shares are sold without a sales charge.

Nondeductible
Unable to be deducted for tax purposes; nondeductible contributions are defined as the sum of (1) amounts contributed by an employer to a qualified retirement plan for a taxable year in excess of the amount allowable as a deduction for that taxable year, and (2) the unapplied amounts from the preceding taxable year.

Nondiscrimination
A retirement plan is a qualified plan only if the contributions or benefits provided under the plan do not discriminate in favor of highly compensated employees. Three requirements must be met: (1) contributions or benefits provided in the plan must be nondiscriminatory in amount; (2) benefits, rights, and features provided under the plan must be available to participants in a nondiscriminatory manner; and (3) the effect of plan amendments and of plan terminations must be nondiscriminatory.

Nonelective Contributions
A contribution to a cash-or-deferred arrangement (CODA) other than an elective deferral. The latter is a contribution that the employee could have elected to receive as cash, but instead elected to defer receipt.

Nonforfeitable
The condition wherein contributions are vested as of the moment they are made to the plan. Under ERISA, all employee contributions are nonforfeitable.

Non-Highly Compensated Employees (NHCE)
Employees eligible to participate in the plan who do not meet the definition of Highly Compensated Employee.

Nonperiodic Distributions
Most nonperiodic distributions fall into three main categories: lump sum distributions, eligible rollovers, and loans from retirement plans. Nonperiodic distributions normally require withholding tax unless the distribution is transferred by a direct rollover to an eligible retirement plan that permits the acceptance of rollover distributions.

Nonqualified Deferred Compensation Plan
An agreement whereby one person (or legal entity) promises to compensate another for services rendered currently with actual payment for those services delayed until sometime in the future. Such agreements are generally in writing, and are mutually supported by the employer's promise to pay deferred benefits and the employee's promise to render services in exchange therefore.

Nonqualified Plan
Retirement plan that does not fall within the IRS and ERISA guidelines established for a plan to be qualified for tax purposes.

Nonresident Alien
Non-U.S. citizen who resides outside the United States; in some cases, inclusion of nonresident aliens in a qualified plan can cause a plan to lose its tax-qualified status.

Non-Spouse Beneficiary
Someone other than a wife or husband who is the recipient of funds after the death of a participant.

Non-Standardized Prototype Plan
A plan that has flexibility in its design but must be submitted to the Internal Revenue Service for approval. If approved the IRS will provide an individual determination letter.

Normal Retirement Age
Established by the individual plan, though most plans specify age 65 as the normal retirement age. Although it is possible to set the retirement age lower than 65, tax complications and potential discrimination issues arise when the retirement age is set lower than age 65.

Notice to Interested Parties
Notice given to all parties in interest regarding legal or administrative issues about which all parties in interest are required by the IRS and the DoL to have disclosure.

Notification Letter
IRS option letter which alerts retirement plans, plan sponsors, and plan administrators of potential issues that might cause a plan to lose its tax-qualified status.

O

Officer (as used in HCE definition)
An administrative executive who is in regular and continued service, excluding those employed for a special and single transaction or those with only nominal administrative duties.

Old Age, Survivors, and Disability Insurance (OASDI)
Payroll tax equal to a set percentage of wages paid to employees. The OASDI tax rate provides for permitted disparity in a defined contribution plan and a simplified employee pension (SEP).

Opinion Letter
Interpretive letter issued by the U.S. Department of Labor that addresses specific issues and clarifies DoL guidelines.

Optional Forms of Benefit
Distribution alternative that is available under a qualified retirement plan. Variances in optional forms of benefit may result from differences in payment schedule, timing, commencement, medium of distribution, election rights, or the portion of the benefit to which the distribution alternative applies.

Option Growth Fund
A mutual fund that invests a significant portion of its portfolio in options.

Option Income Fund
A mutual fund that attempts to increase current income by writing covered options on securities held in the fund's portfolio.

Ordinary Income
Income that is not derived from interest, investment, royalties, rents, etc. (also referred to as earned income), used as a factor in multiple tax calculations regarding the taxation of benefits and the deduction of contributions.

Outstanding Loan Balance
The amount of loan principal that has not yet been repaid.

Owner-Employee
A sole proprietor or a partner who owns more than 20% of either the capital interest or the profits interest in a partnership.

P

Partial Termination
Reducing benefits or making participation requirements less liberal, although not amounting to a complete termination of the plan, may be considered a partial termination, resulting in the vesting of accrued benefits for at least part of the plan.

Partial Withdrawal
Withdrawal for an amount less than the entire account balance.

Partial Vesting
That form of immediate or deferred vesting under which a specified portion of the accrued benefits of a participant becomes a vested benefit.

Participant
An employee or former employee of an employer who is or may become eligible to receive a benefit of any type from an employee benefit plan, or whose beneficiaries may be eligible to receive any such benefit.

Participant Requirements
Most employee benefit plans provide that a new employee must wait a specified length of time before he/she is eligible to participate in the plan. In general, the maximum permissible service requirement is one year, although up to two years may be used in plans that provide for full and immediate vesting. The highest minimum age that can be used is 21.

Participant Statement
A report that is provided to each participant. The statement shows account activity for the previous quarter and the market value of each investment and/or source for each account.

Participation
Taking part in a retirement plan. Most plans have participation requirements that specify which employees are eligible to participate in the plan.

Payroll Deduction
Money that is withdrawn from a participant's pay for plan savings or loan repayments.

Pension Plan
A defined benefit plan that provides a definitely determinable annual benefit based on a formula contained in the plan document.

Percentage Test
The requirement that at least 70% of all Non-highly Compensated Employees be covered by a plan. One of the IRS minimum coverage tests.

Periodic Distributions
Recurring payments such as an annuity that qualify for elective withholding but do not fall under the automatic withholding rules.

Permanent
Qualified plans must be established with the intent of being permanent. Plans can be amended or terminated, but the plan sponsor must prove to the IRS that the retirement plan is for the long-term benefit of its participants.

Permissive Aggregation Group
To determine top-heavy status, an employer may elect to expand the aggregation group to take into account any other plan maintained by the employer if the expanded aggregation group continues to satisfy the coverage and nondiscrimination rules.

Plan
Retirement vehicle by which an employer intends to provide long-term benefits for its employees. Plans can be either defined benefit plans or defined contribution plans. In addition, plans either can be qualified or nonqualified for tax purposes.

Plan Administrator
The legal entity or individual responsible for the day-to-day administration of a benefit program. The Plan Administrator may enlist the services of a Third Party Administrator (TPA) to help them perform their responsibilities. Ultimately, however, it is the Plan Administrator that is responsible for managing the plan and providing benefits in accordance with the plan document, ERISA, the Internal revenue Code (IRC) and all applicable laws and regulations. In order for a benefits program like a retirement plan to receive preferential tax treatment, the plan must comply with all IRS rules and compliance regulations. These laws are enforced by the IRS and include provisions of ERISA. The Plan Administrator is a Fiduciary to the plan.

Plan Amendment
A change in the terms of an existing plan.

Plan Assets
Stocks, bonds, or other investments, including securities of the employer if they are transferable, that have been segregated and restricted (usually in a trust) so they can only be used to provide for post retirement benefits. Plan assets include amounts contributed by the employer amounts contributed by plan participants, and amounts earned from investing the contributions.

Plan Conversion
Refers to the process of converting plan records from the old recordkeeper to the new recordkeeper; also known as a plan installation.

Plan Document
Document detailing the provisions of the plan (participation requirements, vesting, payment options, loan options, etc.).

Plan Participant
An employee or former employee of an employer who is or may become eligible to receive a benefit of any type from an employee benefit plan, or whose beneficiaries may be eligible to receive any such benefit.

Plan Participation Rate
The percentage of eligible employees who are enrolled in the plan.

Plan Sponsor
The employer(s) or organization(s) that establishes and funds a benefits program. Typically, a Plan Sponsor is an employer, labor union or a group of employers. The Plan Sponsor is always a Fiduciary with respect to a qualified benefit plan.

Plan Year
The 12 calendar months ending with the last day of the month specified by the employer in the Adoption Agreement, or plan document.

Pre-Tax Contribution
Employee payroll deductions distributed to a 401(k) plan that are excluded from income for the purposes of calculating current federal and most state income taxes. Pre-tax contributions are included in income for the calculation of Social Security taxes (FICA).

Primary Beneficiary
Individual(s) designated to receive benefits under the plan upon the death of the participant.

Profile Fund
A mutual fund that seeks to tailor its investments to an investor's risk tolerance. Profile funds can be based on an investor's chosen risk profile - for example, conservative, moderate or aggressive. These funds are designed so that they function as the only investment in a portfolio and are meant to reduce hassle for the individual investor by handling asset allocation and rebalancing needs. Also called a lifestyle fund.

Profit Sharing Contribution
Contribution made by the employer who sponsors a profit sharing plan.

Profit-Sharing Plan
A defined contribution plan established and maintained by an employer in which contribution to the plan may vary each year. The plan must provide a definite predetermined formula for allocating the contributions made to the plan among the participants.

Prohibited Transaction
ERISA prohibits a fiduciary from causing a plan to enter directly or indirectly into transactions, with certain persons defined as "parties-in-interest" as either buyer or seller, that would constitute a (1) sale or exchange, or leasing of any property between the plan and a party-in-interest; (2) lending of money or other extension of credit between the plan and a party-in-interest, (3) furnishing of goods, services, or facilities between the plan and a party-in-interest; (4) transfer to or use by or for the benefit of a party-in-interest of any assets of the plan; or (5) the acquisition, on behalf of the plan, of any employer security or employer real property not otherwise specifically exempted by law or regulation.

Promissory Note
Form that is required from the plan participant prior to the release of a loan check which is a promise to repay the loan.

Prospectus
A formal written document that describes a security, for example a mutual fund, for investors. Federal law requires that investment companies distribute a prospectus for each new security sale. The prospectus describes investment objectives, risk, and other essentials to help the investor make an informed purchase.

Prototype Plan
A qualified retirement plan that has been approved and qualified as to its concept by the IRS, that is made available for the use of employers.

Prudent Man
Requires that a plan fiduciary use the "care, skill and diligence" that would be used by a reasonably prudent person familiar with "such matters." While essentially an extension of the common-law requirement of good faith in handling other people's money, it creates a "prudent expert" test that places an additional burden on the plan sponsor -- to know what a person in this position of responsibility should know, rather than a reliance on the knowledge level of the general populace.

PS 58
The costs applied to current life insurance protection provided under the plan for purposes of determining the amount of the participant's tax liability for the coverage.

Q

Qualified
A plan that is entitled to the tax benefits and protections of the Employee Retirement Income Security Act (ERISA). In order to be "qualified", a plan must: (1) have a written plan document, (2) be permanent, (3) communicate the provisions of the plan to eligible employees, (4) be established and operated for the exclusive benefit of plan participants or their beneficiaries, (5) have minimum participation (eligibility) standards, (6) be nondiscriminatory in coverage and contributions/benefits and (7) have minimum vesting standards. For the plan assets to be eligible for tax benefits, the Internal Revenue Code (IRC) also requires that the plan: (1) meet minimum participation, vesting and funding standards, and plan assets must be legally segregated from other assets of the sponsor, (2) must not benefit only a limited number of favored employees but must benefit employees in general in such a way as to be deemed nondiscriminatory by the IRS and (3) must provide definitely determinable benefits.

Qualified Domestic Relations Order (QDRO)
A domestic relations order is a judgment, decree or order that is made pursuant to a state domestic relations law. A domestic relations order is a qualified domestic relations order if it carries or recognizes the existence of an alternate payee's right, or assigns to an alternate payee the right to receive all or a portion of the benefits payable to a participant under a plan and meets all requirements under the IRC. An alternate payee is a spouse, former spouse, child or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits under a plan with respect to the participant.

Qualified Joint and Survivor Annuity (QJSA)
An immediate noncashable and nontransferable annuity for the life of the participant, with a survivor annuity for the life of the participant's spouse. The amount of the survivor annuity cannot be less than 50% or more than 100% of the amount of the annuity payable during the joint lives of the participant and participant's spouse.

Qualified Matching Contribution (QMAC)
An employer may make qualified matching contributions to the plan. The amount of such qualified matching contributions shall be calculated by reference to the participant's elective deferrals as specified in the plan document. Qualified matching contributions are nonforfeitable when made, and distributable only as defined in the plan document.

Qualified Nonelective Employer Contribution (QNEC)
An employer may make special qualified nonelective contributions on behalf of non-highly compensated employees sufficient to satisfy either the ADP test or the ACP test, or both, pursuant to regulations under the Code. Allocations of qualified nonelective contributions to each non-highly compensated employee's account shall be made in accordance with the plan document.

Qualified Retirement Plan
Tax-deferred retirement plan set up by an employer for employees. Can be funded by contributions from employer, employee or both. This term technically refers only to a 401(a) or 401(k) plan, but in practice is often also used to refer to a 403(b) plan that is covered by ERISA.

Qualifying Employer Securities
Stock, marketable obligations or certain publicly traded partnership interests issued by an employer of employees covered by a plan of the employer or an affiliate.

R

Rate of Return
The annual return on an investment, usually expressed as a percentage of the total amount invested.

Reamortization
The process of resetting the loan repayment schedule. It can be due to a participant having a new payroll frequency thus changing the payment frequency or taking advantage of a lower interest rate.

Recharacterization
When the contribution ratios of Highly Compensated Employees need to be reduced, so excess elective contributions are treated as after-tax employee contributions as the excess is included in the employee's gross income or distributed to them.

Recordkeeper
The institution that maintains records for an employer-sponsored retirement plan, like a 401(k), 403(b) or 457 plan. For example, a recordkeeper provides account summaries for participants either through print or Internet communication.

Repayment or Buyback
The process of restoring previously forfeited amounts by repaying either the minimum or maximum amount required.

Required Beginning Date
For a traditional IRA, 401(k) plan or 403(b) plan, the date by which you must begin taking required minimum distributions (RMD). The date is normally April 1 of the calendar year after the year in which you turn age 70 1/2. However, for a 401(k) or 403(b), if you are still working when you turn 70 ½ and you own less than 5 percent of your company, you don't have to begin RMDs from your current employer's plan until you stop working.

Required Minimum Distribution (RMD)
The annual amount you are required to withdraw from an IRA, 401(k) plan or 403(b) plan after you turn 70 ½. Failure to make these withdrawals results in a 50 percent penalty tax. (If you work beyond age 70 1/2, and own less than 5 percent of your company, you do not need to begin RMDs from your employer's 401(k) or 403(b) plan until you retire.) Your distribution amount is determined by your life expectancy (using an IRS-approved mortality table), your account balance, a "reasonable" interest rate and, in certain cases, the life expectancy of your beneficiary. Approved methods for calculating RMD are listed in IRS Publication 590.

Retirement
The cessation of employment at an agreed upon set of criteria as determined by the plan document. Determination is usually based on participation age or years of service or combination of the two.

Retirement Equity Act of 1984 (REA)
The major changes of this legislation included an expansion of the survivor-benefit requirements, allowed the assignment/alienation of benefits in a divorce proceeding (via a QDRO), and reduced the age requirement for plan participation.

Retirement Plan
A plan or program maintained by an employer or an employee organization (or both) that provides retirement income to employees or results in a deferral of income by employees for periods extending generally to the end of employment or beyond, regardless of how plan contributions of benefits are calculated or how benefits are distributed.

Revenue Procedure (rev proc)
A revenue procedure issued by the Internal Revenue Service, similar to a revenue ruling, but dealing with procedural matters, particularly those that affect dealings with the IRS.

Revenue Ruling (rev ruling)
A ruling issued by the Internal Revenue Service expressing its view on the tax results of a specific problem/situation.

Reversion of Contribution
The return of an employer contribution made based on a mistake of fact, or which would impact the plan's qualification or the contribution's deductibility.

Rollover
The reinvestment in a qualified plan or IRA of money received in a nonrequired distribution from another qualified plan that meet certain requirements. If the reinvestment is made within 60 days of the distribution, federal income tax on the distribution is deferred until the benefits involved are finally distributed from the recipient plan. The shifting of funds from one retirement plan to another without incurring any tax liability.

Rollover Contribution
Contribution made to a participant's account originating from a prior qualified account possessed by the participant.

Roth 401(k)
An elective employee contribution under a section 401(k) arrangement permitted after 1/1/2006. Designated Roth 401(k) contributions are made with after-tax dollars and distributions are tax free as a qualified distribution if certain requirements have been met.

Roth Conversion
The process of moving money from a traditional IRA to a Roth IRA. You have to pay income tax (but not the 10 percent early withdrawal penalty) on the deductible contributions you convert. The entire converted taxable amount must be included in your taxable income for the year in which you do the conversion. Individuals who are married and file separate tax returns may not do a Roth conversion; nor can individuals and married couples whose adjusted gross income (AGI) is over the IRS limit.

Roth IRA
An individual retirement arrangement in which you contribute after-tax dollars but pay no tax on withdrawals of principal and earnings if you meet the requirements. IRA contribution limits apply to all of your traditional and Roth IRAs combined. Roth IRAs became available in 1998. They are named after Senator William Roth, R-Del., who co-sponsored the legislation to create them.

Rule of Parity
Enables a plan to forfeit any nonvested accrued benefit upon occurrence of five consecutive one-year breaks in service; the entire prebreak account balance will, therefore, be forfeited under that rule.

S

S Corporation
A corporation whose shareholders have elected to be taxed like a partnership (rather than a regular, "C", corporation), with profits/losses passing directly through to shareholders, rather than at the corporate level.

Safe Harbor
A type of hardship withdrawal in which the participant has to prove there is a financial need due to one of the following circumstances: 1) Purchase of the participant's primary residence; 2)Certain nonreimbursed medical expenses 3) Post-secondary tuition, and 4) Payments required to avoid foreclosure and/or eviction. Participants are not required to sell assets for a safe harbor withdrawal.

Salary Deferral
A portion of a participant's salary that is deducted and placed in their 401(k) account thus deferring payment of taxes on these funds until a distribution from the plan is made.

Savings Incentive Match Plan for Employees (SIMPLE)
A simplified retirement plan, structured either as a 401(k) or as an IRA, that allows employees to make elective contributions, while requiring certain matching or nonelective contributions from the sponsoring employer. The specified rate of employer contributions obviates the requirement to perform the ADP/ACP nondiscrimination tests.

Section 401(a)(26)(of IRC)
Establishes the minimum coverage requirements for a participant in a qualified retirement plan.

Section 401(k)
Section of the IRC that allows profit sharing and stock bonus plans to offer cash or deferred arrangements (CODAs) to participants.

Section 404(c)
ERISA guidelines, which help to reduce a plan sponsor's fiduciary liability for employee investment directed requirement plans. Under DOL regulations, implementing Section 404(c), the plan generally must 1) Allow employees to direct the investments of the contributions among at least 3 investment choices; which have materially different risk and reward characteristics and provide employees an opportunity to diversify their account balance to reduce risk; 2) Give employees adequate information about the investments in the plan so that they make informed choices; and 3) Afford employees the opportunity to transfer among investments at least quarterly (or more often if needed to compensate for fund volatility).

Section 412 (of IRC)
Ensures that minimum funding standards have been established for ERISA plans, and that any party with discretionary power or authority regarding the plan or plan assets must be bonded.

Section 414 (compensation)
Provides rules for defining compensation for purposes of applying any provisions that specifically refer to section 414.

Section 415
Sets out the maximum contribution and benefit limitations of the Internal Revenue Code for qualified plans.

Section 72(t)
The section of the IRS code that lists the approved exceptions to the early withdrawal penalty for traditional IRAs and qualified employer-sponsored retirement plans (401(a)s, 401(k)s and some 403(b)s). Some exceptions apply to both IRAs and employer-sponsored plans, while others are specific to one or the other.

Sector
A groups of securities that share common characteristics. For example, the "energy sector" consists of stocks related to the energy business.

Sector Fund
A mutual fund that concentrates its holdings among securities or other assets with a common theme. For example, a technology stock fund invests in companies that do business in the technology arena.

Self-Directed Account
An investment option offered by some employer-sponsored retirement plans (like 401(k), 403(b) and 457 deferred-compensation plans) to give participants more investing flexibility. A self-directed account allows the participant to invest retirement contributions in mutual funds, individual stocks and/or bonds that are outside the set options offered by the plan. Some plans restrict the account to a certain percentage of the participant's balance, or to a certain type of investment, such as only mutual funds. Participants often pay an annual maintenance fee for the self-directed account, as well as trading commissions. Also known as a brokerage window account.

Self-Employed
An individual who has earned income for the taxable year, or an individual who would have had earned income but for the fact that the trade or business had no net profits for the taxable year. The self-employed individuals Tax Retirement Act of 1962 established the framework by which unincorporated small business owners and partners could set up and participate in tax-qualified pension plans popularly referred to as HR-10 (for an early version of the bill) or Keogh plans (for U.S. Rep. Eugene Keogh, sponsor of the bill). In order to be eligible to establish a Keogh plan, an unincorporated sole proprietorship or partnership must be engaged in a business with a profit motive. Both owners/partners and their self-employed common-law employees are eligible to participate. For Keogh plan purposes, a common-law employee is one for whom an employer has the right to control and direct the results of the work and how it is done.

Separation From Service
A person is separated from service when he does not receive compensation from his former employer. This typically occurs in termination or a willful separation of service.

Settlement Date
Date by which an executed trade must be cleared. Each market has its own conventions as to the period between trade date and settlement date.

Settlement Period
The period between trade date and settlement date.

Simplified Employee Pension (SEP)
A type of retirement plan generally used by small businesses, allowing employers to make tax-deferred contributions to individual retirement arrangements (IRAs) for their employees. Any contributions employers make to their own SEP-IRAs must be matched on a percentage-of-salary basis for their qualifying employees. Employees may not contribute to these plans but may fund a Roth or traditional IRA separately. Withdrawal rules for SEPs are similar to those for other IRAs, but contribution limits are much higher.

Small-Cap Growth Stock
Stock of companies with a market capitalization under $1.5 billion and a growth bias.

Small-Cap Stock
Stock of a company that has little equity and few shares of common stock outstanding, typically with a market capitalization under $1.5 billion. Same as small-capitalization stock.

Small-Cap Value Stock
Stock of company with a market capitalization under $1.5 billion and a value bias.

Socially Responsible Fund
A mutual fund that limits its investing focus to securities of companies that meet certain ethical or social standards. Also ethical fund.

Sole Proprietor
The owner of 100% of an unincorporated business.

Source
The type of contribution in the plan (i.e. pre-tax, after-tax, company match, etc.).

Spousal Consent
Signature of a spouse consenting to the distribution of the participant's account funds. In some states it is mandatory that a participant's spouse consent to the distribution of the participant's plan assets.

Standardized Prototype Plan
A prototype plan that is legally subject to certain design limitations such as coverage, eligibility and compensation requirements which cannot be modified. Standardized plans are generally not required to be filed with the IRS for a determination letter.

Start Up Plan
A plan that is new opposed to a plan that has been converted from a prior recordkeeper.

State Tax Withholding
Amount withheld from a distribution in order to meet the state tax liability of that distribution.

Street Name
Phrase describing securities held in the name of a broker or other nominee instead of the actual owner. Securities lenders often leave stock in street name (except before record date) so they can readily lend it out again, thus avoiding the delay and the expense of registration.

Style
The type of stocks or bonds that a mutual fund contains. Style can refer to the market capitalization of portfolio companies (large-cap, small-cap) or the companies' stock price relative to book value or earnings (value, growth). For example, a large-cap growth fund would be expected to hold stock in companies that have large capitalizations and are expected to have significant revenue and earnings growth. It's important to know a fund's style, and whether it drifts from that style, in order to carry out your asset allocation strategy.

Summary Annual Report (SAR)
A summary report on the financial status of an employee benefit plan which must be given to participants.

Summary of Material Modifications
A document that summarizes significant changes to a plan. It must be furnished to participants and beneficiaries, as well as with the United States Department of Labor. [ERISA Sec. 101(a) and 101(b)]

Summary Plan Description
The document that summarizes a company or government agency's 401(k), 403(b) or 457 plan. By law, this document must be provided to all plan participants and beneficiaries. This summary outlines all the features of the plan, including eligibility, benefits, rules, investment options, etc.; and is generally an abridged version of the plan document.

Survivor Annuity
Part of "joint and survivor annuity," an annuity for the life of a participant with a survivor annuity for the life of the participant's spouse which is not less than one-half, nor greater than the amount of the annuity payable during the joint lives of the participant and the participant's spouse. The joint and survivor annuity will be the amount of benefit which can be purchased with the participant's vested interest in the plan.

Suspension (of benefits)
Benefits are no longer received. This can occur in a variety of situations including death.

T

12b-1 fee
A fee that is paid out of a fund's assets to cover marketing and distribution costs of the fund or pay commissions to brokers. The 12b-1 fee can be charged in a no-load mutual fund. This fee gets its name from the section of the Securities and Exchange Commission rule that describes it.

Target Benefit
A "hybrid" plan combining some of the characteristics of a defined benefit plan and a money purchase plan. A defined benefit formula is used to determine each employee's targeted retirement benefit. An acceptable actuarial cost method, along with acceptable assumptions, is used to determine a contribution for each employee assumed to be sufficient to provide the targeted benefit. At this point, the plan becomes defined contribution in operation, with individual accounts established for employees and all investment gains and losses are credited to their accounts. Ultimately, retirement benefits will be determined by actual account balances. For most tax law purposes, including Section 415 limits, a target benefit plan is treated as a defined contribution plan. Also, it is not subject to the plan termination insurance provisions of ERISA.

Tax Deferral
Tax treatment granted to qualified retirement plans where taxes are not imposed when contributions are made, but instead are imposed when benefits are paid to participants in cash.

Tax-Deferred Account
An account used to postpone taxes until a later date, such as a traditional IRA, employer-sponsored retirement plan, or annuity.

Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)
This legislation lowered limits on contributions and benefits for corporate plans; outlined situations where certain loans from a plan could be treated as distributions; and added "top-heavy" plan requirements. It also introduced the notion of voluntary withholding of taxes on distributions from qualified plans.

Taxable Wage Base
With respect to any year, the maximum amount of earnings which may be considered wages under Section 3121(a)(1) of the internal Revenue Code.

Tax Qualified
Refers to contributions made into a qualified plan whereby the money being contributed has not been taxed and will not be taxed until withdrawn.

Tax Reform Act of 1986
Tax legislation that effected major changes in tax laws. Among other things, the act restricted the deductibility of contributions to IRAs, eliminated preferential tax treatment for capital gains and put a cap on the maximum an employee can contribute to a 401(k) plan.

Tax Withholding
Amount withheld from distribution in order to meet the tax liability of that distribution.

Terminated Vested Participant (TV)
Participant who has a vested interest in their plan account and has terminated employment with the employer.

Termination
A person who has been a participant, but whose employment has been terminated other than by death, total and permanent disability or retirement.

Third Party Administrator (TPA)
An organization that provides record keeping and administrative services to a benefits program. In retirement plans, a TPA typically provides actuarial and/or accounting functions for the Plan Administrator. The TPA essentially keeps the records necessary to determine the benefits attributable to each employee in accordance with the plan document. TPAs can also provide compliance services, generate participant statements and provide Annual Report Form 5500 drafting services. A TPA is generally not a Fiduciary to the plan and a plan is not required to have a TPA if the Plan Administrator performs those services in-house.

Top Hat
Plans for highly compensated individuals and executives not covered by the PBGC.

Top Heavy Plan
A qualified plan in which the share of benefits allocable to key employees is more than 60%. The plan may be subject to special accelerated vesting provisions and minimum contribution rates.

Top-Paid Group (as used in HCE definition)
Generally, the top 20% of employees who performed services for the employer during the applicable year, ranked according to the amount of "415 Compensation" received from the employer during such year.

Traditional IRA
An IRA that may be funded with tax-deductible and/or non-tax-deductible contributions. Deductible contributions and the earnings on them are taxed at withdrawal. Non-deductible contributions are not taxed at withdrawal, but the earnings on them are. Your ability to make a deductible contribution depends on whether you participate in a retirement savings plan at work and your income level. Traditional IRAs were the original IRAs, created in 1974, and were dubbed "traditional" after the introduction of the Roth IRA in 1998.

Transfer Agent
Agent appointed by a corporation to maintain records of all stock and bond holders, cancel and issue certificates, and resolve problems arising from lost or stolen certificates. Mutual fund transfer agents perform these functions for fund shareholders.

Trust
A vehicle for holding assets for the exclusive benefit of participants and their beneficiaries and which must be maintained separately from other corporate funds.

Trust Agreement
An agreement that spells out the methods of receipt, investment and disbursement of funds under a retirement plan. It may contain provisions for investment powers of trustees; irrevocability and nondiversion of trust assets; payment of legal, trustee and other fees relative to the plan; exculpatory clause pertaining to the liability of trustees; periodic reports to the employer or union by the trustees; records and accounts to be maintained by the trustees; conditions for removal, resignation or replacement of trustees; benefit payments under the plan; and the rights and duties of the trustees in case of amendment or termination of the plan.

Trustee
A trust company designated in a trust agreement as having responsibility for holding and investing plan contributions and having responsibility over other financial aspects of the plan. The trustee produces administrative reports confirming receipts, disbursements and asset valuations, drafts checks, calculates federal and state tax withholding and produces 1099R tax forms.

Trustee-To-Trustee Transfer
The direct transfer of money from one tax-deferred account to another (such as from an IRA to another IRA, a 401(k) to another 401(k), or a 401(k) to an IRA) without a check being made out to the account holder. Also known as a direct rollover.

U

V

Valuation
A determination of the value, as of a given date, of an investment or investment portfolio.

Vesting
An employee's right to receive a present or future pension benefit contingent on the years of service set forth in the vesting schedule of the plan. Employee contributions are always fully vested, as are the earnings on employee contributions.

Vesting Schedule
Under the Tax Reform Act of 1986, there are two minimum schedules: 100% vesting after 5 years of service and graduated vesting beginning after 3 years, with 100% vesting after 7 years. If a plan has 100% immediate vesting, the eligibility period may be 2 years of service.

Voice Response System (VRS)
Voice response system that provides participant information and allows participants to initiate certain financial transactions and account maintenance via a recorded system which is accessed by telephone.

Voice Response Unit (VRU)
Voice response unit that provides participant information and allows participants to initiate certain financial transactions and account maintenance via a recorded system which is accessed by telephone.

Volume Submitter Document
All benefits programs and retirement plans require the use of a written plan document. One method for complying with this requirement is for a plan sponsor to adopt a Volume Submitter Document. A Volume Submitter Document differs from a prototype document in that it can be customized more readily for the plan sponsor and is available on more types of plans, i.e., New Comparability Plans and Age-Weighted Profit Sharing Plans. Volume Submitter Documents should be submitted to the IRS for approval in the form of a Letter of Determination. While less expensive to initiate and maintain than a custom document, Volume Submitter Documents are generally more expensive than prototype documents. The sponsor of a volume submitter document is generally a financial institution or retirement plan service provider that receives an opinion letter on the document and, if applicable, associated adoption agreements.

Voluntary/Employee Contribution
A provision for voluntary employee contributions is an optional feature included in some thrift plans. This provision provides a means for the employee to make contributions to the plan on an "after-tax" basis, while allowing earnings on those contributions to accumulate on a tax-deferred basis. Voluntary employee contributions normally are accounted for separately.

W

W-2 Compensation
Compensation is defined as wages, as defined in Code Section 3401(a) and all other payments of compensation to an employee by the employer (in the course of the employer's trade or business) for which the employer is required to furnish the employee a written statement under Code Sections 704(d) and 5051(a)(3). Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Section 3401(a)(2). Compensation for any self-employed individual shall be equal to his earned income.

Withdrawal Hierarchy
The order in which specific funds or sources, or a combination thereof, may be withdrawn when processing a distribution.

Withholding
The process of taking money out of a taxable distribution as a prepayment of income taxes due on the event.

Wrap Account
An investment account in which the client pays a single fee to have a money manager make investment decisions. All costs are "wrapped" into the fee, which is usually charged as a percentage of assets in the account.

X

Y

Year of Service (generally)
The computation period of 12 consecutive months, herein set forth, and during which an employee has completed at least 1000 hours of service.

Z