Retirement Plan Vocabulary Terms Glossary

By | March 4, 2015

Accumulation Benefit – The amount of accrued benefits under the plan.

Plan Administrator – The person who is identified in the plan document as responsible for managing the plan. May be the employer, employee committee, the executive of a company or any person hired for this purpose.

Year Plan – A 12-month period designated by a retirement plan for calculating vesting and distribution, among others. The plan year can be the calendar year or an alternative period, eg from July 1 to June 30.

Years of service – The time a person has worked in employment covered by the plan. Are used to determine when a person participate and acquire rights and how you can accrue benefits in the plan can.

Vested benefits – benefits that the person received under an entitlement to receive them and which can not lose.

Individual Retirement Account (IRA) – An individual account with a financial institution such as a bank or mutual fund company. In accordance with federal law, people can save personal savings up to a certain amount and investment increase with the benefit of tax deferral. In addition, participants in defined contribution plan can transfer money from an employer retirement plan to an IRA when you leave the employer. IRAs can also be part of the plan of an employer.

Plan Document – A written instrument pursuant to which establishes and operates the plan.

State of individual account benefits – A state of individual benefit account provides information on the retirement benefits of a participant, as the total earned in the plan and the benefits gained benefits periodically. Additional information may be included depending on the type of plan, such as how invested a count of 401 (k) plan and the value of such investments.

Plan Trustee – Someone who has the exclusive authority and to manage and control plan assets discretion. The trustee may be subject to the direction of a designated trustee, which may appoint one or more investment managers for plan assets.

Plan Fiduciary – Anyone who exercises discretionary authority or control over the management or administration of the plan, exercises any authority or control over the management or disposition of plan assets or provide investment advice for a fee or other compensation with respect to plan assets.

Automatic Writing – Employers can inscriber employees automatically in a plan such as a 401 (k) plan or an IRA-SIMPLE plan, and inverter certain contributions deducted from the salary of the employee in certain predetermined investments, unless employees decide otherwise. Participants have the opportunity to opt out and periodicals to make changes to their investment opportunities (or in a SIMPLE IRA-the financial institution in which the contributions are invested).

Security Act Retirement Income Employee of 1974 (ERISA) – This is a federal law providing protection standards for people in most retirement plans established private sector voluntarily. ERISA requires plans to provide participants with information about the plan, including important facts about its features and funding; sets minimum standards for participation, vesting, benefit accrual and funding; has fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a process for applications and file appeals for participants to get benefits from their plans; gives participants the right to initiate legal action to obtain their benefits or for breach of fiduciary duty; and if a defined benefit plan terminates, guarantees the payment of certain benefits through an entity constituted by federal authorization, known as the Pension Benefit Guaranty Corporation (PBGC).

401 (k) – In this type of defined contribution plan, the employee can make contributions from your paycheck pre-tax deduction. The contributions are for a 401 (k) and employee investments often chosen based on the options proposed by the plan. In some plans, the employer also makes contributions, which are parallel to employee contributions up to a certain percentage. The safe harbor plans and SIMPLE 401 (k) contributions have additional requirements for employers and vesting of the benefits.

Cash balance plan – A type of defined benefit plan that includes some elements that are similar to a defined contribution plan because the benefit amount is calculated based on a formula that uses tax credits and income, and each participant has an account hypothetical. The cash balance plans are more likely than traditional defined benefit plans to make distributions in the form of a lump sum. (For more information, see Frequently Asked Questions about Cash Balance Pension Plans. )

Defined Benefit Plan – This type of plan, also known as traditional pension plan, promises the participant a specific monthly benefit at retirement. Often, the benefit is based on factors such as your salary, your age and the number of years you worked for the employer.

Defined Contribution Plan – In a defined contribution plan, the employee and / or employer contributions made ​​to the personal account of the employee under the terms of the plan. The employee often decides how to invest the amount of their accounts. The amount in the account at the time of distribution includes the contributions and gains or losses on investments less any administrative fee or investment. The contributions and earnings are not taxed until the time of distribution. The account value will change based on the value and performance of investments.

Plan fixed contributions – This type of plan requires permanent annual employer contributions to personal accounts and is subject to other rules.

Plan matching contributions with incentive savings for small business employees (SIMPLE) – A plan in which a small business with 100 or fewer employees can offer retirement benefits through wage reductions in employee and matching contributions (similar to the contribution 401 (k)). Can be a SIMPLE IRA-SIMPLE plan or 401 (k) plan. SIMPLE IRA plans impose few administrative burdens on employers because IRAs belong to employees and the bank or financial institution receiving the funds made ​​most of the paperwork. While each plan has different characteristics, including contribution limits and availability of loans, contributions required from the employer are immediately acquired 100 percent of the participants in both plans.

Plan of shares acquired employee (ESOP) – A type of defined contribution plan that invests primarily in employer stock.

Plan Simplified Employee Pension (SEP) – A plan where the employer makes contributions for tax benefits to individual retirement accounts (IRA) belonging to employees. If certain conditions are met, the employer is not obliged to report or disclose the requirements of most retirement plans. In a SEP plan, an IRA on behalf of an employee where the employer makes contributions are deposited is established.

Profit sharing plan – A profit sharing plan annually allows the employer to determine what amount will make to the plan (based on the profits or otherwise) in cash or employer stock. The plan contains a formula for allocating the annual contribution among participants.

Multi-employer sponsored plan – A retirement plan sponsored by several employers under collective bargaining agreements that meet other requirements. A participant can change the use of a sponsoring employer to another provided that it remains within the same plan.

Plan safe harbor 401 (k) Plan – A safe harbor 401 (k) is similar to a traditional 401 (k), but the employer must make contributions for each employee.Employer contributions to the plans safe harbor 401 (k) are immediately acquired 100 percent of the participants. This plan reduces the administrative burden imposed on employers by eliminating some of the complex tax ​​rules that generally apply to traditional 401 (k).

Reinvestment – A rollover occurs when a participant stops working with an employer and directs the defined contribution plan to transfer money from your account to a new plan or individual retirement account. This keeps the benefits and does not activate any tax consequences if done in a timely manner.

Summary plan description – A document provided by the plan administrator that includes a description in plain language about the important features of the plan, for example, when employees begin to participate in the plan, how the time is calculated service and the amount of benefits, when the law on benefits, when payment of benefits and how you receive and how to submit a claim is acquired. You must inform participants of any material change either through a revised Summary Plan Description or a separate document called a Summary of Material Modifications.