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Glossary

 

Glossary of Terms
 
401(k) - Refers to the specific section of the Internal Revenue Code that permits employees to contribute a portion of their compensation to a qualified plan on a Pre-tax basis. These plans are also called "cash or deferred arrangements". Amounts contributed to the plan are not taxable to the participants until withdrawn. Amounts to be deposited are determined by the employee. The employer permits formula matching, discretionary matching, pure discretionary or profit sharing contributions, and formula contributions. The Plan Document controls this. Fiduciary responsibilities rest with the employee.
 
Deferred Compensation - A contractual commitment by an employer to an employee to pay compensation in a future tax year.
 
Defined Contribution - A plan that provides an individual account for each participant and benefits based solely on (1) the amounts contributed to the participant's account plus (2) any income, expense, gains and losses, and reallocated forfeitures.
 
Discretionary - The employer has the option of making contributions to the plan at his choice regardless of the profit level of the corporation that year.
 
Elective Contributions – This type of contribution is usually a deferral or percentage of a participant’s salary.  When an eligible employee decides to contribute a percentage of their paycheck to the 401(k) plan they are making an “elective” contribution.
 
Enrollment Meeting - Group meetings with employees to explain the employer's 401(k) plan and the investment accounts available.
 
Extranet - An extension of an organization's intranet, especially over the World Wide Web, enabling communication between the institution and people it deals with, often by providing limited access to its intranet.

Hardship Withdrawals - A means by which a participant may withdraw funds from his 401(k) account prior to age 59 1/2 or termination of employment. A hardship withdrawal may be requested for:

  •  
    purchase of a principal residence
  •  
    tuition expenses for post-secondary education for the next year for you, your spouse or dependents
  •  
    un-reimbursed medical expenses for you, your spouse or dependents
  •  
    payment of rent (to avoid eviction) or mortgage (to avoid foreclosure)
Highly Compensated Employee - An employee owning more than five percent of the company or earning more than $80,000.
 
Loans - Allows participants to access their plan funds without extra tax costs or penalty. The plan must specifically permit loans before participants may borrow.  Check your plan SPD.
 
Matching Contribution - An employer contribution to a plan that is allocated on the basis of the employee's elective contribution. A matching contribution may be either mandatory or discretionary.
 
Non-qualified Plan - A written plan that allows an employer to discriminate in favor of highly compensated employees.
 
Participants - Individuals who actually make deposits into their 401(k) plan. Not all employees become participants or are eligible to participate.
 
Participant Directed - The plan participants are provided the opportunity to direct their own retirement assets/dollars by making investment choice in funds that more closely meet their specific goals and objectives.  Trustee Directed plans do not permit the participants to invest their own assets, but rather, the assets are invested in investments selected by the plan's Trustees.
 
Participant Meetings - Scheduled meetings between Plan Consultants and Participants to review and update individual retirement plan goals and objectives.
 
Plan Document – The plan document is filed with the Department of Labor and the IRS and governs the plan sponsor, the Trustees, investment providers, plan administrators, and participants.  This document is what provides your plan its tax qualified status.  The Summary Plan Description or SPD provides an overview of the plan document.
 
Plan Sponsor - A Business or Employer Organization that sponsors the qualified retirement plan and is ultimately responsible for its administration.
 
Pre-tax - Contributions are made to a retirement plan before taxes are calculated. Your gross pay is reduced by the amount contributed to a retirement plan.
 
Profit Sharing  - A profit sharing contribution is a percentage of compensation paid by the employer to all employees meeting eligibility requirements set by the plan document.  An employer is not required to make a profit sharing contribution however, at the employers discretion, may do so on an annual basis.  While the money is deposited to each eligible employee account and you may generally invest it as your money, you must satisfy vesting requirements before you fully control a profit sharing contribution.
 
Qualified Plan - A plan that meets Internal Revenue Code and IRS regulatory requirements that entitles the employer to an immediate tax deduction when benefits are funded.

Rebalancing - A process by which the system will automatically create transfers between investment funds to achieve the desired asset allocation. Rebalancing can be executed a single time, or established so that transfers will automatically occur at certain dates.

Summary Plan Description – The plan’s Summary plan Description summarizes the Qualified Plan Document and is generally does not provide the detail available in the Plan Document.  Also referred to as the SPD it is available to all persons eligible to participate in the plan.  If you do not have your SPD you may request one form your plan sponsor.
 
Tax-deferred - Federal income tax is not paid on contributions or earnings to a retirement plan until the money is withdrawn.
 
Top Heavy Plan - A plan that provides more than 60 percent of its aggregate accrued benefits or account balances to "key" or "highly compensated" employees
 
Trustee Directed - The plan's Trustees have the fiduciary responsibility to select the investment vehicles and invest the plan assets for all eligible plan participants.
 
Vesting - Refers to an employee's ownership of plan contributions. Employees are always 100% vested in their own contributions. Employer contributions become 100% vested after a predetermined stated period of time.
 
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