Glossary

Showing: Plan Types

NUM

401(a)
A 401(a) is a retirement plan that employers set up and that meet the qualification requirements of the Internal Revenue Code (IRC), Section 401(a). Section 401(a) defines 401(a) qualified trusts and details the various qualification rules of a 401(a) plan. Each state has specific laws governing 401(a) plans and a 401(a) plan must be either created or organized in the United States. Under a 401(a) plan, the employer determines the amount of money to be contributed each year (i.e. by the employee, the employer or both), vesting schedules and eligibility requirements that may be tied to job performance as a way to retain key employees. Under 401a, employers are allowed to create different 401a plans for different groups of employees, giving the employer flexibility in creating different incentive programs for specific employee categories. However, there are specific non-discriminatory requirements (i.e. detailed in IRC Section 401(a)5) that a 401(a) plan must adhere to. Funds from 401(a) plans may be distributed through lump-sum payments, rollovers, or annuity payments.

401(k) Plan
A defined contribution plan offered by a corporation to its employees, which allows employees to set aside tax-deferred income for retirement purposes, and in some cases employers will match their contribution dollar-for-dollar. Taking a distribution of the funds before a certain specified age will trigger a penalty tax. The name 401(k) comes from the IRS section describing the program.

401(k) Profit Sharing Plan
A type of profit sharing plan that includes an elective salary deferral provision. The employer typically has the ability to make a matching contribution that is tied to the elective salary deferral, as well as a profit sharing contribution that is allocated to all eligible participants.

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.

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 Like traditional 401(k) and 403(b) plans, the money contributed and any earnings that accumulate are not taxed until withdrawn.

C

Cafeteria Plan
Also known as a Section 125 plan. A plan which allows participants to choose between cash and qualified benefits e.g., health insurance, health flexible spending account to pay for or reimburse medical expenses, day care reimbursement account). The individual is giving up cash compensation to purchase “welfare” type benefits.

Cash or Deferred Arrangement
A qualified profit sharing or stock bonus plan that gives a participant an option to take cash or to have the employer contribute the money to a qualified profit sharing plan as an “employer” contribution to the plan (i.e., an “elective deferral”). These arrangements are often referred to as “401(k) plans.”

CODA
A qualified profit sharing or stock bonus plan that gives a participant an option to take cash or to have the employer contribute the money to a qualified profit sharing plan as an "employer" contribution to the plan (i.e., an "elective deferral"). These arrangements are often referred to as “401(k) plans."

D

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

ESOP
An Employee Stock Ownership Plan is an employee benefit plan intended to motivate employees by giving them a stake in the firm's success through equity participation. Purchase of shares by employees is funded by a loan (usually from a bank) guaranteed by the employer. This plan costs little or nothing to the employer because the loan principal is paid off from the dividend payment to the employees, and the loan interest is a tax deductible expense.

M

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

N

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

Plan Document
The written document setting forth the terms of the plan, including the eligibility and vesting requirements, how benefits are determined, and when benefits may be distributed.

Prototype Plan Document
Usually a two part document. One part is the Basic Plan Document that contains language and definitions, which are the same for all plans. The other part is an Adoption Agreement, which is a fill-in-the-blank document containing employer information and specific plan provisions.

S

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

Tax-Sheltered Annuity Plan
Also known as a 403(b) plan 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.

V

Volume Submitter Plan
Documents that look like individually-designed documents and have been preapproved by the IRS.