Retirement Planning Definitions Flashcards
(298 cards)
1
Q
ABLE ACCOUNT
A
ABLE accounts are designed to help people with disabilities and their families save and pay for disability-related expenses.
2
Q
ACTIVE PARTICIPANT
A
Individuals who participate in a qualified plan under IRC 401(a)
3
Q
ACTUAL CONTRIBUTION PERCENTAGE TEST (ACP)
A
A nondiscrimination test that limits the sum of employee after-tax contributions and employer matching contributions for the HC based on the sum of employee after-tax contributions and employer matching contributions for the NHC.
4
Q
ACTUAL DEFERRAL PERCENTAGE TEST (ADP)
A
A nondiscrimination test that limits employee elective deferrals for the highly compensated employees (HC) based on the elective deferrals of non-highly compensated employees (NHC).
5
Q
ACTUARY
A
An expert professional who makes quantitative calculations and assumptions about inflation
6
Q
ADEQUATE CONSIDERATION STANDARD
A
Fair market value determined in good faith.
7
Q
ADJUSTED BASIS (AB)
A
The portion of a distribution that is not subject to income tax.
8
Q
ADJUSTED GROSS INCOME (AGI)
A
A tax return amount that includes an individual’s income less certain deductions
9
Q
ADOPTION ASSISTANCE PROGRAM
A
An employee-provided program that pays adoption expenses up to $14
10
Q
AGE-BASED PROFIT SHARING PLAN
A
A qualified profit sharing plan that uses a combination of age and compensation as the basis for allocating the contribution to a participant’s account.
11
Q
AIME (AVERAGE INDEXED MONTHLY EARNINGS)
A
A worker’s highest 35 years of earnings adjusted for inflation and averaged on a monthly basis.
12
Q
ALIMONY
A
Support payments from one ex-spouse to the other.
13
Q
ANNUITY CONTRACTS
A
An annuity contract must be purchased for the employee from an insurance company and may give a fixed benefit or a variable benefit depending on the performance of the investment.
14
Q
ANNUITY METHOD
A
Determines how much a client needs to fund their retirement based on the assumption that the person will die exactly at the assumed life expectancy with a retirement account balance of zero.
15
Q
ANTI-ALIENATION PROTECTION
A
An ERISA-afforded protection for qualified plans that prohibits any action that may cause a qualified plan’s assets to be assigned
16
Q
ANY OCCUPATION
A
Type of disability insurance policy that provides benefits to a policy owner if he is unable to perform the duties of any occupation.
17
Q
ARCHER MEDICAL SAVINGS ACCOUNT (MSA)
A
A medical savings account available for employers with 50 or less employees and self-employed individuals.
18
Q
AVERAGE BENEFITS Percentage Test
A
One part of the average benefits coverage test that requires the average benefit percent of the non-highly compensated employees to be at least 70 percent of the average benefit percentage of the highly compensated employees.
19
Q
AVERAGE BENEFITS TEST
A
A qualified plan coverage test that determines whether the plan adequately benefits the non-highly compensated employees.
20
Q
BACK LOADING
A
A practice of delaying the accrual of benefits until late in someone’s career.
21
Q
BACKDOOR ROTH
A
A technique whereby a high-income taxpayer contributes to a traditional IRA with the intent of converting those funds to a Roth IRA.
22
Q
BARGAIN ELEMENT
A
Appreciation of employer stock above the exercise price.
23
Q
BENEFIT PERIODS
A
Begins on the first day an individual receives services as a patient in a hospital or skilled nursing facility and ends after 60 consecutive days without further skilled care.
24
Q
BLACK SCHOLES METHOD
A
An option valuation model.
25
BUSINESS PREMISES OF THE EMPLOYER
The employee's place of employment.
26
BUY-SELL AGREEMENTS
Legal arrangements that require the sale of securities owned by one individual to another individual or entity upon a specified triggering event.
27
CAFETERIA PLAN
A written plan where the employee may choose to receive cash as compensation or
28
CAPITAL NEEDS ANALYSIS
The process of calculating the amount of investment capital needed at retirement to maintain the pre-retirement lifestyle.
29
CASH BALANCE PENSION PLAN
A defined benefit pension plan that shares many of the characteristics of defined contribution plans but provides specific defined benefits based on a mandatory contribution and earnings rate.
30
CATCH-UP CONTRIBUTION
A contribution that allows those nearing retirement to increase their deferral contributions to improve their financial situation for retirement.
31
CENTS PER MILE RULE
To determine the value of the personal use of an employer-provided automobile
32
CLIFF VESTING SCHEDULE
A vesting schedule that provides the participant's full rights to the plan's assets immediately upon the passage of a certain number of years.
33
COMBINED OMNIBUS BUDGET RECONCILIATION ACT OF 1986 (COBRA)
Requires an employer that employs 20 or more people in a typical business day and has a health insurance plan to continue to provide health insurance coverage under that health insurance plan to covered employees and qualified dependents.
34
COMMUTING RULE
To determine the value of the personal use of an employer-provided vehicle
35
CONDUIT IRAS
Accounts that hold rollover funds are often referred to as IRA rollover accounts or conduit IRAs.
36
CONSTRUCTIVE RECEIPT
An income tax concept that establishes when income is includible by a taxpayer and therefore subject to income tax.
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Constructive Receipt
Income credited or available to the employee.
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Contributions
Payments made to an IRA account.
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Conversion
Changing a traditional IRA to a Roth IRA.
40
Corrective Distribution
Distribution to satisfy ADP or ACP tests.
41
Cost of Living Adjustment (COLA)
Adjustments applied to Social Security benefits.
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Covered Compensation Limit
Maximum compensation for qualified plan contributions.
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Covered Employee
Employee benefiting from a qualified plan.
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Credit for Prior Service
Recognition of service years before plan establishment.
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Cross Purchase Life Insurance
Insurance for partners to buyout deceased interests.
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Currently Insured Workers
Workers with six quarters of coverage in 13 quarters.
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Custodial Accounts
Accounts maintained for participants by financial institutions.
48
Custodians
Entities holding an individual's IRA.
49
DB(k) Retirement Plan
Combines defined benefit and 401(k) plans.
50
Deferred Compensation Arrangements
Future payment of executive compensation.
51
Defined Benefit Plan
Plan providing formula-based retirement benefits.
52
Defined Contribution Plan
Plan with contributory or noncontributory accounts.
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De Minimis Fringe Benefit
Insignificant benefits making accounting impractical.
54
Department of Labor
Enforces rules for plan managers and benefits.
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Dependent Care Assistance
Employer-paid care services for employees' dependents.
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Determination Letter
IRS request for retirement plan compliance confirmation.
57
Dilution
Reduction in stock value or voting power.
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Direct Rollover
Account balance transferred directly to another trustee.
59
Disability Benefit
Social Security benefit for severe impairments.
60
Disability Insurance
Periodic payments for inability to work.
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Disability Insurance Trust Fund
Fund paying disability benefits
62
Disability Overhead Insurance
Covers business expenses if owner becomes disabled.
63
Discretionary Contributions
Employer decides annual matching contribution amounts.
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Disqualified Persons
Individuals owning significant stock in a company.
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Disqualifying Disposition
Selling stock acquired via ISO before required periods.
66
Distress Termination
Plan termination due to employer financial difficulty.
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Diversified Investment Portfolios
Investments spread across various asset classes.
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Early Withdrawal Penalty
10% penalty for withdrawals before age 59½.
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Earned Income
Compensation for services performed or self-employment.
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Economic Benefit Doctrine
Taxation on unrestricted funds or property for employees.
71
Eligible Corporations
Non-public companies granting stock options to employees.
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Employee Census
Matrix of employee information for plan selection.
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Employee Elective Deferral Contributions
Pretax contributions to a qualified retirement plan.
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EPCRS
IRS system for correcting plan disqualifications.
75
ERISA
Legislation protecting employee retirement assets.
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Employee Stock Ownership Plan (ESOP)
Plan using employer contributions to buy company stock.
77
EMPLOYEE STOCK PURCHASE PLAN
A plan designed to benefit all or a large portion of an employer's employees that gives employees an incentive to buy employer stock by allowing the employees to purchase the stock at a discounted price (up to a 15% discount) and receive favorable tax treatment for any gains if the stock meets certain holding period requirements.
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EMPLOYER MATCHING CONTRIBUTIONS
Employer-provided contributions to a qualified retirement plan
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ENTITY INSURANCE
Insurance in which the entity purchases a life insurance policy on the life of each partner or shareholder that is used for buyouts triggered by death of a shareholder or partner.
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EXCESS BENEFIT PLANS
A type of SERP that is designed solely to provide benefits in excess of the benefits available in qualified plans based on the limits under IRC §415.
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ERISA ATTORNEY
An attorney who specializes in §501(c)(3) of the Internal Revenue Code.
82
FAIR MARKET VALUE
The price that a willing buyer would pay a willing seller
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FAMILY BENEFIT
A Social Security benefit available to certain family members of workers eligible for retirement or disability benefits.
84
FICA (FEDERAL INSURANCE CONTRIBUTIONS ACT)
A law allowing Social Security taxes
85
FIDUCIARY
An individual that has a special relationship of trust
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15-YEAR RULE
A special catch-up provision for 403(b) plan participants that have worked for the plan sponsor for 15 years. The catch-up allows them to defer up to an additional $15
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50/40 COVERAGE TEST
A coverage test applicable only to a defined benefit pension plans that requires the plan to cover for every day during the plan year the lesser of 50 employees or 40% of all eligible employees.
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FINAL 3-YEAR CATCH-UP PROVISION
A special catch-up provision for public and private 457(b) plans that allows an individual to defer an additional $19
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501(c)(3) ORGANIZATIONS
Nonprofit tax-exempt organizations that are established under IRC.
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FIXED AMORTIZATION METHOD
The substantially equal periodic payment is calculated over the participant's life expectancy if single
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FIXED ANNUITIZATION METHOD
The participant takes substantially equal periodic distributions of the account over a number of years determined by dividing the account balance by an annuity factor using a reasonable interest rate and mortality table.
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FLAT AMOUNT FORMULA
A benefit formula of a defined benefit pension plan that provides each of its participants with an equal dollar benefit at retirement.
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FLAT PERCENTAGE FORMULA
A benefit formula of a defined benefit pension plan that provides all plan participants with a benefit equal to a fixed percentage of the participant's salary
94
FLEXIBLE SPENDING ACCOUNT (FSA)
A cafeteria plan under which employees can choose between receiving cash or deferring income tax-free to fund the cost of certain employee selected benefits. If the participant does not utilize the money in the account by the end of the year
95
FORFEITURES
The percentage or amount of a participant's accrued benefit that was not vested to the employee at the employee's termination from the plan sponsor. The forfeited amount stays in the plan and may be allocated to the other plan participants (defined contribution plan) or reduce future plan costs (defined contribution plan or defined benefit plan).
96
FORGONE REVENUE
The lost revenue or opportunity cost incurred by an employer for providing the fringe benefit to the employee.
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FORM 5304-SIMPLE
The IRS form used to establish a SIMPLE IRA plan when the employees choose the financial institution.
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FORM 5305-SIMPLE
The IRS form used to establish a SIMPLE IRA plan when the employer chooses the financial institution.
99
401(k) WRAP PLANS
A form of salary reduction plan that enable executives who are subject to salary deferral limitations due to the nondiscrimination rules to contribute higher amounts than otherwise permitted under a 401(k) plan.
100
457 PLAN
A nonqualified deferred compensation plan for employees of state and local government and tax-exempt entities.
101
457(b) PLANS
457(b) plans for governmental and tax-exempt organizations under 501(c) that allow employees to defer income taxation on savings for retirement into future years. Eligible plans are available to most of an employer's employees.
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457(f) PLANS
457(f) plans for employees of governmental entities and tax-exempt entities under 501(c)(3). Ineligible plans are only available to highly compensated and management employees.
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FRINGE BENEFIT
A benefit
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FULLY INSURED
A worker who has earned 40 quarters of coverage under the Social Security system.
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FUTA (FEDERAL UNEMPLOYMENT TAX ACT)
A tax on an employee's wages.
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GRACE PERIOD
If an employer meets the 100-employee limitation in a given year
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GRADUATED VESTING SCHEDULES
A vesting schedule that provides an employee with full rights to a certain percentage (less than 100%) of benefits after completing a number of years of service and provides the employees with an additional percentage for each additional years of service.
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GRANT DATE
The date of issuance of a stock or option.
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GROUP LONG-TERM DISABILITY POLICIES
Benefits typically begin after short-term disability and will often continue for a fixed period of time
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GROUP SHORT-TERM DISABILITY POLICIES
Benefits generally begin after a short period of time
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GROUP TERM LIFE INSURANCE
Pure insurance protection purchased as a group that pays a predetermined sum if the insured dies during a specified period of time (i.e.
112
HARDSHIP DISTRIBUTIONS
A distribution from a 401(k) plan because the employee has an immediate and heavy financial need and the withdrawal is necessary to satisfy the need. The distribution is taxable and subject to penalties to the extent the participant has other resources to have satisfied the financial need.
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HEALTH SAVINGS ACCOUNTS (HSAS)
A medical savings account
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HEALTH MAINTENANCE ORGANIZATIONS (HMOS)
A form of managed care in which participants receive all of their care from participating providers. Physicians are employed by the HMO directly
115
HEALTH REIMBURSEMENT ARRANGEMENT (HRA)
A type of health insurance plan that reimburses employees for qualified medical expenses.
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HIGHLY COMPENSATED EMPLOYEE
An employee who is either a more than 5 percent owner at any time during the plan year or preceding plan year
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Special Election
An election to count only those employees whose compensation is in excess of $130
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Hospital Insurance (HI) Trust Fund
The trust fund that pays for services covered under the hospital insurance provisions of Medicare (Part A)
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Hypothetical Account
The account statement that displays hypothetical allocations and hypothetical earnings
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Incentive Stock Options (ISOs)
A right given to an employee to purchase an employer's common stock at a stated exercise price
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Includible Compensation
An employee's taxable wages and benefits for the most recent year of service.
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Indemnity Health Insurance
Traditional
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Indirect Rollover
A distribution to the participant with a subsequent transfer to another qualified account (or IRA).
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Individual 401(k) Plan
An easy-to-administer
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Individual Retirement Account (IRA)
Two general types under present law: traditional IRAs
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Annuity
An annuity contract or endowment contract issued by an insurance company that follows many of the same rules for deductibility of premium payments and the limits for premium payments as a traditional IRA.
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In-Service Withdrawal
Any withdrawal from a qualified retirement plan other than a loan while the employee is a participant in the plan.
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Interested Parties
Present employees who are eligible to participate in the plan and present employees who are not eligible for the plan but whose principal place of employment is the same as the principal place of employment of any employee who is eligible to participate.
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Involuntary Termination
Termination initiated by the PBGC for a defined benefit plan that is unable to pay benefits from the plan.
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IRA Annuity
An annuity contract or endowment contract issued by an insurance company that follows many of the same rules for deductibility of premium payments and the limits for premium payments as a traditional IRA.
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IRC Section 83(b) Election
Election to include in gross income the difference between the fair market value of restricted stock and its purchase price.
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Joint Life Expectancy Table
The life expectancy table used to determine a participant's RMD when the participant's sole designated beneficiary is the participant's spouse and that spouse is more than 10 years younger than the participant.
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Keogh Plan
A qualified plan for a self-employed individual.
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Key Employee
Any employee who is a greater than five percent owner
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Key Person Life and Disability Insurance
Life insurance coverage for employees who are considered critical to the success of a business and whose death might cause financial loss to the company.
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Lease Value Rule
To determine the value of an automobile
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Lepto-Kurtic
A distribution that appears to be normal but has more area under the two tails than a normal distribution (i.e.
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Leveraged ESOP
An ESOP that borrows the funds necessary to purchase the employer's stock
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Loan Offset
A reduction in the amount of a direct rollover distribution's outstanding loan balance
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Lump-Sum Distribution
A complete distribution of a participant's account balance within one taxable year on account of death
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Managed Care Insurance
Health-care delivery systems that integrate the financing and delivery of health care
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Mandatory Funding Requirement
An amount or percentage that must be contributed to a qualified pension plan by the employer each plan year.
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Master Plan
Provides a single trust or custodial account that is jointly used by all adopting employers.
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Maximum Family Benefit
The limit on the amount of monthly Social Security benefits that may be paid to a family.
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Medicaid
Provides medical assistance for persons with low incomes and resources.
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Medicare
A federal health insurance plan for those who have attained age 65 or have been disabled whether retired or still working.
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Modified Adjusted Gross Income
When calculating taxable Social Security
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Money Purchase Pension Plan
A defined contribution pension plan that provides for mandatory employer contributions to the plan each year of a fixed percentage of the employees' compensation.
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Monte Carlo Analysis
A mathematical tool used to calculate the success of an individual's retirement portfolio using changing variables.
150
Net Unrealized Appreciation (NUA)
A special taxation treatment for a lump-sum distribution from a qualified plan that treats the appreciation in the value of employer stock as capital gain.
151
New Comparability Plan
A qualified profit sharing plan in which contributions are made to employees' accounts based on their respective classification in the company.
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No-Additional-Cost Services
Services provided by an employer to an employee that do not cause the employer to incur any substantial additional cost or lost revenue.
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Nonallocation Year
Any plan year of an employee stock ownership plan that holds employer securities consisting of stock in an S corporation
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Noncontributory Plans
Qualified retirement plans that do not include employee contributions.
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Nondiscriminatory
A requirement of all qualified plans that eligibility rules
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Nondiscriminatory Classification Test
Helps to determine whether a plan adequately benefits nonhighly compensated employees.
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Nonelective Contributions
Contributions to a qualified plan on behalf of all eligible employees.
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Nonexcludable
An employee who must be considered as eligible to participate in a qualified plan.
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Nonqualified Deferred Compensation Plan (NQDC)
A contractual arrangement between the employer and an executive whereby the employer promises to pay the executive a predetermined amount of money sometime in the future.
160
Nonqualified Plans
Plans that do not meet the requirements of the IRC §401(a) and therefore do not have the benefits of qualified plans.
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Nonqualified Stock Options (NQSOs)
An option that does not meet the requirements of an incentive stock option
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NONRECOGNITION OF GAIN TREATMENT
A delay in the recognition of gain available to owners of a company that sell company stock to an ESOP
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OFFICER
An administrative executive who is in regular and continued service and has the executive authority normally associated with an officer.
164
OLD AGE
SURVIVOR
165
OLD AGE AND SURVIVORS INSURANCE (OASI)
The trust fund that pays retirement and survivors' benefits funded by 5.30 percent of an individual's taxable earnings up to $137
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ON-PREMISES ATHLETIC FACILITY
A gym or other athletic facility operated by the employer
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ONE YEAR OF SERVICE
1
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OPTION PRICE (EXERCISE PRICE)
Usually the fair market value at the grant date.
169
OWN OCCUPATION
Type of disability policy which states that if the insured is unable to perform the duties associated with his own occupation
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PASS THROUGH VOTING RIGHTS
The voting rights of the stock pass through from the ESOP or the stock bonus plan to the participant.
171
PAYROLL TAXES
The combination of OASDI and Medicare tax paid by an employee and employer on an employee's compensation.
172
PENSION BENEFIT GUARANTY CORPORATION (PBGC)
Established in 1974 to guarantee federal qualified pension benefits and acts as an insurance provider to maintain the benefits promised to employees by their defined benefit pension plans.
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PENSION PLAN
A qualified retirement plan that pays a benefit
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PERMITTED DISPARITY (SOCIAL SECURITY INTEGRATION)
A method of allocating qualified plan contributions to an employee account that provides a higher contribution to employees whose compensation exceeds the Social Security wage base ($137
175
PHANTOM STOCK PLAN
A nonqualified deferred compensation arrangement where the employer gives fictional shares of stock to a key employee
176
PHASEOUT
The AGI range that will affect the deductibility of IRA contributions and an individual's ability to make contributions to a Roth IRA.
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PIA (PRIMARY INSURANCE AMOUNT)
The amount on which a worker's retirement benefit is based; it determines the amount the applicant will receive at full retirement age based on the year in which the retiree turns 62 and is indexed to the Consumer Price Index (CPI) annually.
178
PLAN ENTRANCE DATE
The date an eligible employee becomes a participant in a qualified plan.
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PLAN FREEZE
Employer will no longer make any contributions to the plan
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PLAN LOANS
Loans from a qualified plan made available to all participants on an effectively equal basis
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POINT OF SERVICE PLAN (POS)
A managed care/indemnity plan hybrid that mixes aspects of HMOs
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PRE-1974 CAPITAL GAIN TREATMENT
A special taxation treatment for lump-sum distributions from qualified plans that treat the distribution attributable to pre-1974 participation in the plan as long-term capital gain.
183
PREFERRED PROVIDER ORGANIZATION
A form of managed care where participants have more flexibility in choosing providers than in an HMO
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PRIMARY CARE PHYSICIAN
A physician designated as a participant's first point of contact with the health care system
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PROFIT SHARING PLAN
A qualified retirement plan established by an employer where the employer makes deductible contributions on behalf of employees
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PROHIBITED TRANSACTIONS
Transactions between the plan and a disqualified person that are prohibited by law.
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PROTOTYPE PLAN
A prepackaged plan that allows the sponsor to use a check the box approach to plan choices.
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PURCHASING POWER PRESERVATION MODEL (PPP)
A capital needs analysis method that assumes that at a client's life expectancy
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PURE ANNUITY CONCEPT
The basic capital needs analysis approach
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QUALIFIED AUTOMATIC CONTRIBUTION ARRANGEMENT (QACA)
A plan that contains a 'qualified automatic enrollment feature' and is eligible for a new nondiscrimination safe harbor under PPA 2006.
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QUALIFIED DISTRIBUTION
A distribution from a Roth IRA made after a five-taxable-year period and on account of the account owner's death
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QUALIFIED DOMESTIC RELATIONS ORDER (QDRO)
A property court order related to divorce
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QUALIFIED EDUCATIONAL ASSISTANCE PROGRAM
A plan established and maintained by an employer that provides employees with educational assistance
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QUALIFIED ELECTION PERIOD
The 6-plan-year period beginning with the first plan year in which the individual first became a qualified participant.
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QUALIFIED EMPLOYEE
Under §83 (i)
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Excluded Employee
Any employee (1) who is a one-percent owner of the corporation at any time during the calendar year
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Qualified Employee Discounts
A discount on the value of property or services offered to an employer's customers in the ordinary course of the employer's business may be excluded from an employee's income (subject to certain limitations).
198
Qualified Joint and Survivor Annuity (QJSA)
The QJSA pays a benefit to the participant and spouse as long as either lives; although
199
Qualified Matching Contribution (QMC)
Additional matching contributions made by the employer to satisfy the ADP or ACP test that increases the ACP or ADP of the NHC employees who had deferred compensation during the plan year.
200
Qualified Moving Expenses Reimbursement
Members of the Armed Forces (or their spouse or dependents) on active duty who move pursuant to a military order and incident to a permanent change of station may deduct amounts attributable to in-kind moving and storage expenses
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Qualified Nonelective Contribution (QNEC)
A contribution made by the employer to satisfy the ADP or ACP test that increases the ADP or ACP of the NHC employees by making additional contributions to all NHC eligible employees without regard to any elective deferral election made by the employees.
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Qualified Non-Personal Use Vehicle
A vehicle that the employee does not use more than a minimal amount for personal reasons due to the design of the vehicle. The value of a qualified non-personal use vehicle is excluded from an employee's gross income.
203
Qualified Optional Survivor Annuity (QOSA)
An annuity for the life of a participant with a survivor annuity for the life of the participant's spouse that is equal to a specified applicable percentage of the amount of the annuity that is payable during the joint lives of the participant and the spouse.
204
Qualified Parking
Parking provided by the employer on or near the employer's business premises. An employee may exclude up to $270 per month (for 2020) from his gross income for employer provided parking.
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Qualified Participant
Any employee who has completed at least 10 years of participation under the plan and has attained age 55.
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Qualified Plan
A retirement plan that meets the qualifications of IRC §401(a).
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Qualified Plan Award
An employee achievement award bestowed as part of an established written plan of an employer that does not discriminate in favor of highly compensated employees for eligibility or benefits. The value of an award provided under the plan
208
Qualified Plan Loan Offset Amount
A plan loan offset amount that is treated as distributed from a qualified retirement plan
209
Qualified Pre-Retirement Survivor Annuity (QPSA)
Provides a benefit to the surviving spouse if the participant dies before attaining normal retirement age.
210
Qualified Replacement Securities
Securities in a domestic corporation
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Qualified Stock
Under §83 (i)
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Qualified Trust
A trust established or organized in the U.S. that is maintained by the employer for the exclusive benefit of employees.
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Qualified Tuition Reduction
The amount of any reduction in tuition provided to an employee of an educational organization for education below the graduate level is excluded from the employee's gross income.
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Rabbi Trust
An irrevocable trust that is designed to hold funds and assets for the purpose of paying benefits under a nonqualified compensation arrangement. The assets in a rabbi trust are for the sole purpose of providing benefits to employees and may not be accessed by the employer.
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Rank-and-File Employees
The non-key
216
Ratio Percentage Test
A coverage test that compares the ratio of nonhighly compensated covered by a retirement plan to the ratio of highly compensated covered by the plan. The comparative ratio must be at least 70%.
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Recharacterization of Deferrals
To change the nature of any excess employee deferrals from pretax employee contributions to after-tax employee contributions.
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Recharacterize
Transferring a contribution and its attributable earnings from a traditional IRA to a Roth IRA or vice versa. The recharacterization must occur by the tax return filing date including extensions for the year of the recharacterization.
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Remaining Work Life Expectancy (RWLE)
The work period that remains at a given point in time before retirement.
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Repurchase Option (Put Option)
An option that allows a terminating employee to receive in cash the fair market value of the employer's stock within a stock bonus plan or ESOP if the employer stock is not readily tradeable on an established market.
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Required Beginning Date (RBD)
The date on which lifetime minimum distributions must begin. Generally April 1st of the year following the year the participant attains age 72.
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Required Minimum Distribution
A minimum amount that must be withdrawn from a qualified plan each year after the participant attains the age of 70% (age 72 if age 70% is attained after December 31
223
REQUIRED MINIMUM DISTRIBUTION METHOD
The substantially equal periodic payment is calculated in the same manner as required under minimum distribution rules. Note that payments are recalculated annually.
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RESTRICTED STOCK PLAN
An employer provided plan designed to increase retention and compensate employees with a non-cash outflow. The plan pays executives with shares of the employer's stock. The executive does not pay any amount towards the allocation of the stock and
225
RETIREMENT BENEFIT
The most familiar Social Security benefit
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RETIREMENT EARNINGS LIMITATIONS TEST
A test that may reduce the Social Security benefit paid to an individual based on their other income.
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RETIREMENT FUNDING (CAPITAL NEEDS ANALYSIS)
The process of calculating the amount of investment capital needed at retirement to maintain the pre-retirement lifestyle and mitigate the impact of inflation during the retirement years.
228
RETIREMENT LIFE EXPECTANCY (RLE)
The time period beginning at retirement and extending until death; the RLE is the period of retirement that must be funded.
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RETIREMENT NEEDS ANALYSIS
The process of determining how much money a person needs to accumulate to be financially independent during retirement.
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ROLLOVER
To elect to transfer funds from one tax-advantaged account to another tax-advantaged account to continue to defer the recognition of income taxes until the ultimate distribution of the assets.
231
ROTH IRA
An IRA created by the Taxpayer Relief Act of 1997. Contributions to a Roth IRA are nondeductible and qualified distributions are excluded from an individual's taxable income.
232
S CORPORATIONS
Small corporations taxed as pass-through entities that cannot have more than 100 individual shareholders and have only one class of stock.
233
SAFE HARBOR COVERAGE TEST
A Coverage test that requires the employer to cover at least 70% of the nonhighly compensated employees.
234
SAFE HARBOR 401(k) PLANS
A 401(k) plan that satisfies a minimum contribution or matching test and allows the plan sponsor to bypass the ADP test
235
SALARY CONTINUATION PLAN
An arrangement between an employer and an employee where the employer agrees to continue to pay an employee after his retirement or to the employee's spouse if the employee dies prior to retirement.
236
SALARY REDUCTION PLANS
A nonqualified plan designed to receive deferral contributions from executives to reduce their current taxable income.
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SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION (SARSEP)
A plan that can no longer be established but allowed employees to elect to defer a portion of their current salary into a SEP-IRA in a similar fashion to a 401(k) plan.
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SAVERS CREDIT (RETIREMENT SAVINGS CONTRIBUTIONS CREDIT)
A tax credit for making eligible contributions to an IRA or employer-sponsored retirement plan.
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SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLES)
Retirement plans for small employers with 100 or fewer employees who earn more than $5
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SAVINGS RATE
The average savings amount in the U.S. based on consumption.
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SECTION 83(b) ELECTION
Election to include in gross income the difference between the fair market value of restricted stock and its purchase price.
242
SECULAR TRUSTS
Irrevocable trusts designed to hold funds and assets for the purpose of paying benefits under a nonqualified deferred compensation arrangement. A secular trust does not create a substantial risk of forfeiture for the employee. Assets set aside in a secular trust results in immediate inclusion of income to the employee.
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SEE-THROUGH TRUST
A trust that is the beneficiary of a custodial IRA. For participant deaths before January 1
244
SELF-INSURED PLAN
A plan that reimburses employees for medical expenses not covered by an accident or health insurance policy.
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SEPARATE INTEREST APPROACH
Divides the participant's retirement benefit into two separate portions: one for the alternate payee and one for the participant.
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SHARED PAYMENT APPROACH
Splits the actual benefit payments made between the participant and the alternate payee.
247
SENSITIVITY ANALYSIS
A tool used to understand the range of outcomes for each variable in a retirement plan. It rotates each variable toward the undesirable side of the risk to determine the impact of a small change in that variable on an overall plan.
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SIMPLE 401(k)
A SIMPLE plan that utilizes a 401(k) plan as the funding vehicle of the plan.
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SIMPLE IRA
A SIMPLE plan that utilizes an IRA account as the funding vehicle of the plan.
250
SIMPLIFIED EMPLOYEE PENSION (SEP)
A practical retirement plan alternative to a qualified plan that can be used by small businesses and sole proprietors. It follows many of the same limits as qualified plans but may require the employer to cover more employees.
251
SINGLE LIFE EXPECTANCY TABLE
Tables used to calculate the required minimum distribution for beneficiaries.
252
SOCIAL SECURITY INTEGRATION (PERMITTED DISPARITY)
A technique or method of allocating qualified plan contributions to an employee account that provides a higher contribution to those employees whose compensation is in excess of the Social Security wage base ($137
253
SPLIT DEFINITION
Type of disability policy where an insured is covered against the risk of not performing his own occupation for a period of time
254
SPLIT-DOLLAR LIFE INSURANCE ARRANGEMENT
A single life insurance policy in which two parties
255
SPOUSAL IRA
An IRA created on behalf of a spouse who does not have the necessary earned income to make a contribution to an IRA of their own but can borrow earned income from their spouse.
256
SSI (SUPPLEMENTAL SECURITY INCOME)
A program administered by the Social Security Administration and funded by the general Treasury that is available to those age 65 or the disabled who have a low income and few assets.
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STANDARD ELIGIBILITY
The general eligibility requirement that requires an employer to consider an employee eligible when he attains 21 years of age and has completed one-year of service (defined as 1
258
STANDARD ELIGIBILITY REQUIREMENTS
IRC eligibility rules for participation in a qualified plan. Provides that an employee must be considered eligible to participate in the plan after completing a period of service with the employer extending beyond the later of the date on which the employee attains the age of 21 or the date on which the employee completes one year of service (1
259
STANDARD TERMINATION
Termination in which the employer has sufficient assets to pay all benefits (liabilities) at the time of final distribution.
260
STOCK APPRECIATION RIGHTS (SARS)
Rights that grant to the holder cash in an amount equal to the excess of the fair market value of the stock over the exercise price.
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STOCK BONUS PLAN
A qualified profit sharing plan funded solely with employer stock.
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STOCK OPTION
A right to buy stock at a specified price for a specified period of time.
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SUBSTANTIAL AND RECURRING
IRC standard defining the frequency requirement of contributions by employers to profit sharing plans.
264
SUBSTANTIAL RISK OF FORFEITURE
An income tax concept that relates to when income is subject to income tax. A substantial risk of forfeiture exists when rights in property that are transferred are conditioned
265
SUITABILITY
Having a reasonable basis to believe that a recommended transaction or investment strategy is appropriate for a client
266
SUMMARY ANNUAL REPORT
A summary of the annual financial report that the plan files with the Department of Labor each year.
267
SUMMARY OF MATERIAL MODIFICATIONS
Document that provides in plain language the modifications made to a qualified plan.
268
SUMMARY PLAN DESCRIPTION
Document that explains in plain language the details of a retirement plan and how it operates. It provides information on when an employee can begin to participate in the plan
269
SUPERANNUATION
The risk of outliving available savings.
270
SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS (SERP)
Nonqualified deferred compensation arrangements designed to provide additional benefits to an executive during retirement.
271
SUPPLEMENTARY MEDICAL INSURANCE (SMI) TRUST FUND
The trust fund that pays for services covered under the medical insurance provisions of Medicare
272
SURVIVORS' BENEFIT
Social Security benefit available to surviving family members of a deceased
273
TANDEM PLAN
A 10% money purchase pension plan combined with a 15% profit sharing plan. These were popular prior to TRA 2001.
274
TARGET BENEFIT PENSION PLAN
A special type of money purchase pension plan that determines the contribution to the participant's account based on the targeted benefit that will be paid from the plan at the participant's retirement rather than on the value of the contribution to the account. Requires an actuary at inception.
275
TAX SHELTERED OR DEFERRED ANNUITIES (403(b) PLANS)
Retirement plans for certain qualified non-profit organizations or employees of public educational systems often called 401(k)s for nonprofit organizations.
276
10-YEAR FORWARD AVERAGING
A method of income tax calculation for certain lump-sum distribution from qualified plans that divides the taxable portion of the lump-sum distribution by 10 and applies the result to the 1986 individual income tax rates. The resulting calculation is then multiplied by 10 to determine the total income tax due on the distribution.
277
TERM INSURANCE POLICY
A life insurance contract which states if the insured dies within the term of the contract
278
THIRD PARTY ADMINISTRATOR
An organization unrelated to the plan sponsor who is paid to administer the plan sponsor's qualified or other retirement plan.
279
THRIFT PLAN
A qualified retirement plan that permits employees to make after-tax contributions to the plan. Although the contributions are taxable before being contributed to the plan
280
THRIFT SAVINGS PLAN (TSP)
A retirement savings and investment plan for Federal employees and members of the uniformed services
281
TITLE I OF ERISA
Coverage
282
TOP HAT PLANS
Plans designed to benefit a select group of top management or key employees. A plan is top heavy if more than 60 percent of either the account balance or accrued benefits are for the benefit of key employees.
283
TOP-HEAVY
Rules that were designed to ensure that plans established primarily to benefit the owners and executives of the company also provided some minimum level of benefits for the rank-and-file employees.
284
TRADITIONAL IRA
An IRA that may accept deductible and nondeductible contributions and whose assets grow tax-deferred until distribution.
285
TRUSTEED IRA
A trust established within the United States that holds IRA assets
286
TWO-YEAR ELIGIBILITY ELECTION
A special election that overrides the standard eligibility requirements and permits the employer to only consider those employees who have two years of service as eligible to participate in a plan. If the employer elects the two-year requirement
287
UNIFORM LIFETIME TABLE
A table used to calculate the RMD for the plan participant unless the participant's sole designated beneficiary is the participant's spouse and that spouse is more than 10 years younger than the participant.
288
UNIT CREDIT FORMULA
A benefit formula of a defined benefit pension plan that utilizes a combination of the participant's years of service and salary to determine the participant's accrued benefit.
289
UNIVERSAL LIFE INSURANCE
A term insurance policy with a cash accumulation account attached to it.
290
UNSAFE CONDITIONS COMMUTING RULE
The value of commuting transportation provided by an employer to a qualified employee solely because of unsafe conditions is $1.50 for each one way commute.
291
VEST
To give an employee rights to employer contributions and earnings in their retirement plan benefits.
292
VOLUME SUBMITTER PLAN
A plan that is designed by a professional
293
VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATION (VEBA)
A welfare benefit plan into which employers deposit funds that will be used to provide specified employee benefits in the future. The deposits are deductible for the employer at the date of the contribution rather than at the date when the employee benefits are provided.
294
WAGE REPLACEMENT RATIO (WRR)
An estimate of the percent of income needed at retirement compared to earnings prior to retirement.
295
WHOLE LIFE INSURANCE POLICY
A permanent life insurance policy that guarantees that the policy will remain in force as long as the premium is paid. The life insurance policy has a cash account that grows tax deferred.
296
WORK LIFE EXPECTANCY (WLE)
The period of time a person is expected to be in the work force
297
WORKING CONDITION FRINGE BENEFITS
Any property or service provided to an employee that enables the employee to perform his work and
298
YEAR OF SERVICE
At least 1
