Glossary

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NUM

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

403(b) Plan
Also known as a tax-sheltered annuity (TSA) or a tax-deferred annuity (TDA), is an employer sponsored retirement savings plan for employees of not-for-profit organizations, such as colleges, hospitals, foundations and cultural institutions.

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.

457 Plan
A tax-deferred retirement savings plan available to state and municipal employees. Like traditional 401(k) and 403(b) plans, the money contributed and any earnings that accumulate are not taxed until withdrawn.

A

Accrued Benefit
A benefit that an employee has earned (or accrued) through participation in the plan. In a defined contribution plan, the participant’s accrued benefit is the balance in his or her individual account at a given time. In a defined benefit plan, the accrued benefit is determined as specified by the plan.

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.

Age-weighted Profit Sharing
A type of profit sharing allocation where participant’s age, or length of time until retirement, is factored into the allocation formula on an individual basis, so older participants receive a larger proportionate share of the contribution.

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.

Automatic Contribution Arrangement
Also known as Automatic Enrollment. The practice of enrolling all eligible employees in a plan and beginning participant deferrals without requiring the employees to submit a request to participate.

Automatic Enrollment
The practice of enrolling all eligible employees in a plan and beginning participant deferrals without requiring the employees to submit a request to participate. After the Pension Protection Act of 2006, there are two new Automatic Contribution Arrangements, the EACA and the QACA options. See definition in this section.

C

Catch-up Contributions
A catch-up contribution allows people over age 50 to make additional contributions to their 401(k) and/or individual retirement accounts. The catch-up contribution provision was created by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), so that older individuals would be able to set aside enough savings for retirement.

Conversion
The process of changing from one service provider to another.

D

Deemed IRA Contributions
Voluntary employee contributions that are made to a qualified plan and designated by the employee to be treated as an IRA contribution. These contributions are permitted for plan years beginning on or after January 1, 2003, if the plan allows for them.

Defined Benefit Plan
Such plans define the benefits to be received at retirement. The employer determines, within IRS limits, the level of benefits, such as a fixed monthly payment or a certain percentage of compensation. Contributions are made annually to fund these benefits based on the benefit formula stated in the plan document.

Defined Contribution Plan
Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts (through employer contributions and, if applicable, employee contributions) plus any investment earnings on the money in the account.

E

EACA
An Eligible Automatic Contribution Arrangement enables employers to unilaterally enroll employers in their 401(k) plans at a specified percentage of compensation and invest contributions in government approved default investment funds without fear of fiduciary liability, and without being subject to state garnishment law restrictions. The arrangement can allow for the 90-day opt out provision.

Elective Contributions
Also known as elective deferrals or 40(k) contributions. The amount of money the employee elects to contribute towards his/her 401(k) plan. As qualified elective contributions are tax deferred, the employer actually reduces the participant's income by the amount of the elective contribution. The accumulations and earnings in a 401(k) plan build on a tax deferred basis as well.

Eligibility
The determination of when an employee becomes a participant in the plan.

Entry Date
The date or dates specified in the Adoption Agreement at which a participant can begin receiving a contribution.

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).

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

Integrated Profit Sharing Plan
A plan that takes into account either benefits or contributions made under Social Security.

IRA
Individual retirement accounts are self-directed investment accounts that provide the incentive of tax-deferred or tax-free earnings on assets in the account. If you earn income, or are married to someone who does, you can put up to $5,000 per year in an IRA in 2011. If you're 50 or over, you can invest an additional $1,000.

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

Mandatory Contributions
Employee contributions that are required as a condition of participation in the plan, or as a condition for receiving benefits or contributions under the plan.

Matching Contributions
Employer contributions that are made on account of elective contributions or employee contributions; also includes forfeitures that are allocated as matching contributions

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-elective contributions
Employer contributions (other than matching contributions) with respect to which the employee may not elect to have the contributions paid to the employee in cash or other benefits instead of being contributed to the plan.

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.

Non-qualified Deferred Compensation Plan
An arrangement under which an employer provides deferred compensation to an eligible employee or allows independent contractors to defer compensation that would otherwise be currently payable for services rendered, but under a set of rules that makes them “non qualified” for purposes of the tax code.

P

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 .

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.

QDIA
Qualified Default Investment Alternative. The Pension Protection Act of 2006 (PPA) includes a provision which insulates plan fiduciaries from liability associated with an approved default investment option.

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.

R

Roth 401(k)
A 401(k) feature that allows employees to make elective contributions on an after-tax basis. Qualified distributions from these plans, including both the Roth contributions and their associated earnings, are distributed tax-free.

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.

SEP IRA
Simplified employee pension. A defined contribution plan in which employers make contributions to individual employee accounts (similar to IRAs). Employees do not contribute to the plan.

SIMPLE 401(k) Plan
Savings Incentive Match Plan for Employees. A type of defined contribution plan for employers with 100 or fewer employees in which the employer matches 100% of employee deferrals up to 3% of compensation or provides nonelective contributions up to 2% of compensation. These contributions are immediately and 100% vested, and they are the only employer contribution to the plan. SIMPLE plans may be structured as individual retirement accounts (IRAs) or as 401(k) plans.

SIMPLE IRA Plan
Savings Incentive Match Plan for Employees. A type of defined contribution plan for employers with 100 or fewer employees in which the employer matches 100% of employee deferrals up to 3% of compensation or provides nonelective contributions up to 2% of compensation. These contributions are immediately and 100% vested, and they are the only employer contribution to the plan. SIMPLE plans may be structured as individual retirement accounts (IRAs) or as 401(k) plans.

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.