Glossary

Showing: Compliance

NUM

401(a)(9)
Tax code section requiring minimum distributions after age 70 ½.

402(g) limit
Test to ensure that the total of each participant’s elective deferrals has not exceeded the calendar year limit

415 Limit
Test to ensure that the total of each participant’s allocated contributions, including deferrals, and forfeitures for the limitation year (generally the same as the plan year) has not exceeded the annual additions limit.

A

ACP Test
Also known as the Actual Contribution Percentage Test. An anti-discrimination test that compares the amount of match contributed to highly compensated employees to the amount of match contributed to non-highly compensated employees.

Actual Contribution Percentage Test
An anti-discrimination test that compares the amount of match contributed to highly compensated employees to the amount of match contributed to non-highly compensated employees.

Actual Deferral Percentage Test
An anti-discrimination test that compares the amount of match contributed to highly compensated employees to the amount of match contributed to non-highly compensated employees.

ADP Test
Also known as the Actual Deferral Percentage Test. An anti-discrimination test that compares the amount deferred by highly compensated employees to the deferrals of non-highly compensated employees.

Affiliated Service Group
Two or more entities having a service and possible ownership relationship.

ASPPA
The American Society of Pension Professionals & Actuaries or ASPPA is a national organization for career retirement plan professionals. The membership consists of the many disciplines supporting retirement income management and benefits policy.

Audit CAP
Audit Closing Agreement Program. Audit CAP is available to correct any operational failure, provided the defect does not involve a diversion or misuse of plan assets, or an abusive tax avoidance transaction, for which correction rules outside of EPCRS apply.

B

Blackout period
A period of time when participants are not permitted to take loans, obtain distributions, or direct investments. A blackout period most commonly occurs during a conversion of plan's assets from one provider to another provider.

C

COLA
An adjustment made to Social Security and supplemental security income in order to adjust benefits to counteract the effects of inflation. COLAs are generally equal to the percentage increase in the consumer price index for urban wage earners and clerical workers (CPI-W) for a specific period.

Control Group
Businesses that share common ownership. Depending on the percentage of ownership, companies under a controlled group (common control) must be treated as one company for retirement plan purposes. For a corporation, a controlling interest means ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote, or at least 80 percent of the total value of shares of all classes of stock.

D

DEFRA ’84
Deficit Reduction Act of 1984. One portion of the Act was the Tax Reform Act of 1984 (TEFRA).

DFVCP
The Delinquent Filer Voluntary Compliance Program is designed to encourage voluntary compliance with the annual reporting requirements under the Employee Retirement Income Security Act (ERISA). Gives delinquent plan administrators a way to avoid potentially higher civil penalty assessments by satisfying the program’s requirements and voluntarily paying a reduced penalty amount.

DOL
The Department of Labor administers the non-tax (regulatory and administrative) provisions of ERISA. The Department issues opinion letters and other pronouncements, and requires certain information forms to be filed.

E

EBSA
The Employee Benefits Security Administration is an agency of the Department of Labor responsible for protecting the integrity of retirement plans, health plans and other employee benefits.

EESA
The Emergency Economic Stabilization Act is one of the bailout measures taken by Congress in 2008 to help repair the damage from the subprime mortgage crisis. The act gives the Treasury Secretary the authority to buy up to $700 billion of troubled assets and restore liquidity in financial markets.

EGTRRA
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)

EPCRS
The Employee Plans Compliance Resolution System is a comprehensive IRS correction program that allows plan sponsors to correct plan defects voluntarily.

ERISA
The Employee Retirement Income Security Act of 1974 is the basic labor law covering qualified plans and incorporates both the pertinent Internal Revenue Code provisions by reference and labor law provisions.

ERISA Bond
ERISA regulations require that all pension plans, including 401(k) plans, be insured by an "ERISA bond" which has a payout equal to 10% of plan assets, or $500,000 (maximum of $1,000,000), whichever is less. There is no difference between an ERISA bond, fiduciary and fidelity bonds. All three respond to claims involving dishonest acts on the part of asset investment advisors or the employer. The fidelity, ERISA and fiduciary bonds cover against losses due to a criminal act.

ERPA
An Enrolled Retirement Plan Agent is an individual who has been approved by the IRS to practice before the IRS on certain retirement plan issues. An ERPA is similar to an Enrolled Agent.

F

Fidelity Bond
ERISA regulations require that all pension plans, including 401(k) plans, be insured by an "ERISA bond" which has a payout equal to 10% of plan assets, or $500,000 (maximum of $1,000,000), whichever is less. There is no difference between an ERISA bond, fiduciary and fidelity bonds. All three respond to claims involving dishonest acts on the part of asset investment advisors or the employer. The fidelity, ERISA and fiduciary bonds cover against losses due to a criminal act.

Fiduciary
Any person (individual or corporation) who exercises discretionary authority orcontrol over the management or disposition of plan assets.

G

GATT ’94
General Agreement on Tariffs and Trade Act (part of the Uruguay Round Agreements Act)

GUST ’94
Acronym used to refer to a collection of laws that changed some of the rules that apply to retirement plans GATT, USERRA, SBJPA and TRA of ’97.

H

HCE
Also known as a Highly Compensated Employee. Anyone who is a 5% owner of a company or who received more than $110,000 in compensation in 2011 (the compensation limit is adjusted annually).

HEART
The Heroes Earnings Assistance and Relief Tax. Amended the Internal Revenue Code of 1986 to provide benefits for military personnel, and for other purposes.

Highly Compensated Employee
Also known as a Highly Compensated Employee. Anyone who is a 5% owner of a company or who received more than $110,000 in compensation in 2011 (the compensation limit is adjusted annually).

I

Internal Revenue Code
All federal tax laws. The Internal Revenue Code is found as Title 26 of the United States Code, a collection of all federal laws.

IRS
This is an agency of the Treasury Department, headed by the Commissioner of Internal Revenue, charged with enforcing the tax laws. Included in IRS functions are issuances of interpretations of the tax law, auditing of tax returns, and making criminal investigations.

J

JCWAA ’02
Job Creation and Worker Assistance Act of 2002.

K

Key Employee
A participant who, at any time during the plan year is (1) an officer whoearns more than $130,000 as indexed, (2) a more-than-5 percent owner of the employer, or (3) a more-than-1 percent owner earning more than $150,000.

M

Multiple Employer Plan
A single plan maintained by more than one unrelated employer.

N

New Comparability Formula
Also known as Class Allocated. New Comparability is a retirement plan design that allows business owners to allocate a more significant share of the tax qualified contributions to the accounts of select employees (such as owners or key employees) as compared to the other eligible employees.

NHCE
Employees who are not highly compensated. Generally, they are employees who earned less than $110,000 in 2011 (indexed for inflation). See highly compensated employees.

Non-Highly Compensated Employee
Employees who are not highly compensated. Generally, they are employees who earned less than $110,000 in 2011 (indexed for inflation). See highly compensated employees.

O

OBRA ’86
The Omnibus Budget Reconciliation Act of 1987 contained provisions affecting the minimum funding standards in the section of the Act also known as the Pension Protection Act of 1987.

P

PBGC
Pension Benefit Guaranty Corporation - A nonprofit corporation, functioning under the jurisdiction of the Department of Labor, that is responsible for insuring benefits to participants of certain defined benefit plans. PBGC was created by the Employee Retirement Income Security Act of 1974 to encourage the continuation and maintenance of  private-sector defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at a minimum.

Permitted Disparity
Method of computing and allocating non elective contributions under an employer sponsored plan, where the allocation method results in participants, with compensation above the integration level receiving a higher percentage of contribution .

Plan Administrator
The person an employer chooses to manage the organization's retirement savings plan, usually within the company.

Plan Sponsor
An employer who offers the plan to employees. The sponsor is responsible for choosing the plan, the plan provider and the plan administrator, and for deciding which investments will be offered through the plan.

PPA 2006
The Pension Protection Act. Legislation signed into law on August 17 2006, for which the primary goal was to protect and enhance the retirement savings and pension provisions.

Q

QACA
A Qualified Automatic Contribution Arrangement is an automatic contribution arrangement must provide a specified schedule of automatic contributions, an employer contribution, and notices to participants describing the plan provisions. The QACA satisfies the Safe Harbor rules and is deemed to pass most non-discrimination tests.

QKA
The Qualified 401(k) Administrator credential was created by ASPPA for retirement plan professionals who work primarily with 401(k) plans.

QMAC
Qualified Matching Contributions are matching contributions that are 100% vested at all times and that are subject to the same distribution restrictions as elective contributions.

QNEC
Qualified Non elective Contributions are a non-elective contributions that are 100% vested at all times and that are subject to the same restrictions of distribution as elective contribution.

QPA
The Qualified Pension Administrator (QPA) credential was created by ASPPA to recognize professionals who are qualified to perform the technical and administrative functions of qualified plan administration. QPA's assist employers, actuaries, and consultants in performing functions such as determination of eligibility benefits, computation of benefits, plan recordkeeping, trust accounting and disclosure, and compliance requirements.

R

REA ‘84 (Retirement Equity Act)
The act that makes it mandatory for employees with spouses to be in receipt of retirement income from a pension plan in the form of a joint life and survivorship annuity, unless the employee's spouse waives that right in writing. This is to prevent the employee from writing the spouse out of the benefit income.

S

Safe Harbor Plan
Pre-approved IRS language using specifically-named events that are deemed to meet the IRS requirements for the issue employer is required to make contributions for each employee. The employer contributions in Safe Harbor 401k plans are immediately 100% vested.

SBA of ‘96 (Small Business Jobs Protection Act of 1996)
Act which include provisions that provided tax relief for small businesses, protect jobs, and increased the take home pay of workers.

SCP
The Self Correction Program allows a plan sponsor that has established compliance practices and procedures the ability to self-correct insignificant operational failures at any time without contacting the IRS and without payment of any fee or sanction.

Summary of Material Modification (SMM)
A summary of amendments and changes made to the plan that is distributed to participants in the interim period until a new SPD is distributed.

Summary Plan Description (SPD)
A document describing the features of an employer-sponsored plan. The primary purpose of the SPD is to disclose the features of the plan to current and potential plan participants. ERISA requires that certain information be contained in the SPD, including participant rights under ERISA, claims procedures and funding arrangements.

T

Top Heavy Minimum
The top-heavy minimum benefit in a defined benefit plan must not be less than the employee’s average compensation multiplied by the lesser of 2% times the number of years of service, or 20%.

Top Heavy Plan
A plan in which 60% of account balances (both vested and non-vested) are held by certain highly compensated employees.

Top Paid Group
Employees who are among the highest paid 20% of all the employees of the employer. See Highly Compensated Employee.

TRA ‘86 (Tax Reform Act Of 1986)
Sweeping revisions to the income tax laws, enacted by the United State Congress in 1986, that lowered tax rates and eliminated many tax shelters.

Trustee
The individual, group of individuals, bank, or trust company having fiduciary responsibility for holding plan assets. 

U

USERRA ‘94
(The Uniformed Services Employment and Reemployment Rights Act) protects service members' reemployment rights when returning from a period of service in the uniformed services, including those called up from the reserves or National Guard, and prohibits employer discrimination based on military service or obligation.

V

Vesting Schedule
The structure for determining participants' right to company contributions that have accrued in their individual accounts. In a plan with immediate vesting, company contributions are fully vested as soon as they are deposited to a participant's account. Cliff vesting provides that company contributions will be fully vested only after a specific amount of time, and that employees who leave before this happens will not be entitled to any of the company contributions (with certain exceptions for death, disability or retirement). In plans with graded vesting, vesting occurs in specified increments.

Voluntary Correction Program (VCP)
Used when a plan sponsor is under examination and qualification defects are discovered. In the program the plan sponsor and the IRS negotiate an appropriate settlement, typically resulting in larger sanctions than under the VCP program designed to handle the more common and less flagrant plan defects submitted to the IRS for review upon payment of a user fee.

W

WRERA
The Worker, Retiree, and Employer Recovery Act of 2008 provides a number of relief provisions for qualified plan sponsors and their beneficiaries and individual retirement arrangements. These include provisions for required minimum distribution relief for 2009, special rules for Roth-to-Roth rollovers, and expansion of rollovers for non spouse beneficiaries.