Retirement Plans Glossary

A retirement savings plan offered by employers that allows employees to contribute a portion of their paycheck before taxes, with potential employer matching and tax-deferred growth.

A nondiscrimination test that ensures employee elective deferrals (pre-tax and Roth) do not exceed the IRS annual contribution limit.

A retirement savings plan for employees of public schools, nonprofits and certain religious organizations, allowing pre-tax contributions and tax-deferred growth similar to a 401(k).

A test verifying that the plan is including at least 70% of the non-highly compensated employees who have met the minimum age and service requirements set by the Internal Revenue Code (one year of service and age 21). This test is performed when a plan excludes certain classes of employees or if there is an accrual requirement on employer contributions. For example, an employee must be employed on the last day and/or work 1,000 hours to receive the contributions.

This test is performed when an employer excludes certain types of compensation (bonus, overtime, etc.). This test ensures that the employer is not discriminating against the non-highly compensated employees by excluding more compensation for them than for the highly compensated employees.

The IRS limits how much can be put into any defined contribution plan per participant per year. This total includes all deferrals, match and profit-sharing contributions for the plan year. Rollover and catch-up contributions are not included for this limit.

This is a requirement for the participant to receive a discretionary employer contribution, such as working 1,000 hours or being employed on the last day of the plan year.

This is a test that must be performed to determine whether matching contributions to a 401(k) plan discriminate in favor of highly compensated employees (HCE).

This is a test that must be performed to determine whether salary deferral contributions to a 401(k) plan discriminate in favor of highly compensated employees (HCE).

The process of dividing investments among different asset categories, such as stocks, bonds, and cash, to balance risk and reward.

A feature that automatically enrolls eligible employees in a retirement plan unless they opt out.

A feature that automatically increases an employee’s contribution rate over time.

A temporary period during which participants cannot make changes to their retirement accounts, often due to administrative updates or plan transitions.

A retirement plan service model where recordkeeping, administration, and investment management are provided by a single provider.

A provision that allows people over age 50 to make additional deferral contributions to their 401(k) and/or individual retirement accounts.

A vesting schedule where employees become 100% vested after a specific period of service, with no partial vesting before that point.

Cost of Living Adjustment – periodic increases in retirement benefits to keep up with inflation.

Your money grows at an accelerating rate, as each new interest calculation is based on an increasingly larger amount.

The amount of money added to a retirement plan by the employee, employer or both.

The maximum amount that can be contributed to a retirement plan annually, as set by the IRS.

A group of businesses with shared ownership that must be treated as a single employer for retirement plan testing purposes. If the businesses form a controlled group, additional testing may be required.

A distribution of funds from the plan to correct a non-discrimination test or to correct a contribution in excess of a statutory limitation. Corrective distributions for a failed ADP/ACP test must be made to participants within 2½ months after the plan year-end in order for employers to avoid a 10% excise tax. These distributions are taxable to the employee in the year distributed.

An entity responsible for holding and safeguarding the assets of a retirement plan.

The percentage of an employee’s salary that is contributed to a retirement plan.

A retirement plan that provides a pre-determined, fixed retirement benefit using a formula, with the employer bearing the investment risk.

A retirement plan where an employer, employee or both contribute to an individual account. The retirement benefit depends on the total contributions and investment earnings over time, not a fixed amount. Common types include 401(k) and 403(b) plans, and the employee typically bears the investment risk and manages the funds.

A withdrawal from a retirement account. Distributions may be subject to income tax and early withdrawal penalties if taken before age 59½.

A strategy that mixes a wide variety of investments within a portfolio to reduce risk.

A portion of a company’s earnings distributed to shareholders, often used as income in retirement accounts.

Eligible Automatic Contribution Arrangement – a type of automatic enrollment feature that allows employees to withdraw contributions within a certain time frame.

The criteria an employee must meet to participate in a retirement plan, such as age and length of service.

A contribution made by an employer to an employee’s retirement plan, often based on the employee’s own contributions.

A retirement plan offered by an employer to its employees, such as a 401(k) or 403(b).

Employee Retirement Income Security Act – federal law that sets minimum standards for retirement plans in private industry.

Employee Stock Ownership Plan – a retirement plan that invests primarily in the employer’s stock.

A refund required due to failure of a plan’s ADP test. Excess contributions are typically returned to the affected employee(s) and taxed in the year the money was distributed.

The annual fee, calculated as a percentage of a fund’s assets, that mutual funds or other investments charge to cover their operating costs.

A form of insurance protection that covers policyholders from losses that they incur as a result of fraudulent acts by specified individuals. The IRS requires that a person who handles plan funds or other property of the plan be bonded. The bond must be at least 10% of the total plans assets at the beginning of the plan year. Ameritas does not offer fidelity bonds; they are obtained from a surety company.

A person or organization that manages a retirement plan and is legally obligated to act in the best interest of plan participants.

When participants leave the company before becoming fully vested, they lose some of the employer contributions made to their retirement account.

A tax form used to report distributions from retirement accounts.

A tax form used to report excise taxes related to retirement plans.

An annual report filed with the IRS and Department of Labor that provides information about a retirement plan’s financial condition and operations.

The selection of investment options available to participants in a retirement plan.

A vesting schedule where employees gradually become vested over time, typically in equal annual increments.

A withdrawal from a retirement plan due to an immediate and heavy financial need, subject to IRS rules and potential penalties.

One of three types of employees:

• An employee that is a more than 5% owner at any time during the plan year or the previous year.
• A direct relative of more than a 5% owner (spouse, child, parent and grandparent).
• An employee that receives compensation in excess of the IRS limit.

A plan feature where employer contributions are fully vested as soon as they are made.

A personal retirement savings account that offers tax advantages. There are two main types: traditional and Roth IRAs.

Fees charged for managing investments and safeguarding plan assets.

A document that outlines the investment strategy and guidelines for a retirement plan.

Defined as a pension benefit plan that covers 100 or more participants as of the beginning of the plan year (the IRS defines “participant” as anyone who has met the plan’s eligibility requirement, regardless of whether they actively participate in the plan). The IRS requires the plans that are defined as large plans to be audited and file the full government form 5500.

A required disclosure that shows participants how their current account balance would translate into monthly income in retirement.

Required Minimum Distribution – the minimum amount you must withdraw annually from certain retirement accounts starting at age 73.

The degree of variation in investment prices over time, often used to describe risk in retirement investing.

A pre-set mix of investments designed to match a certain risk profile or retirement timeline.

An investment vehicle that pools money from many investors to purchase a diversified portfolio of stocks, bonds or other securities.

The value per share of a mutual fund, calculated by dividing the total value of assets minus liabilities by the number of shares outstanding.

An employee that receives compensation less than the IRS limit in the prior year and is not an owner.

Tests that are required to be completed by qualified plans and ERISA-403(b) accounts, to ensure that plan benefits/contributions do not discriminate in favor of highly compensated employees.

Administrative costs and services related to maintaining a retirement plan.

A retirement plan that allows unrelated employers to participate in a single plan managed by a pooled plan provider to reduce costs and administrative burden.

An entity responsible for administering a pooled employer plan and ensuring compliance with applicable regulations.

A company that provides human resource services and may sponsor retirement plans for employees of client businesses.

An employer contribution to a retirement plan based on company profits.

A legal order that allows retirement plan benefits to be divided in a divorce or legal separation.

Employer contributions made to satisfy nondiscrimination testing requirements, which are immediately vested.

An employer-sponsored retirement plan that meets specific requirements of the Internal Revenue Code (IRC) (Section 401(a)) and the Employee Retirement Income Security Act (ERISA) to receive favorable tax treatment, including pre-tax contributions, tax-deferred growth, and employer tax deductions.

The gain or loss on an investment over a specified period, expressed as a percentage.

Adjusting the allocation of assets in a portfolio to maintain a desired risk level.

Tools used to assess an investor’s comfort with risk and guide investment choices.

The process of moving funds from one retirement account to another, such as from a 401(k) to an IRA, without incurring taxes or penalties.

An employer-sponsored retirement savings plan where employees contribute with money they’ve already paid taxes on, making the contributions and any qualified earnings withdrawals tax-free in retirement. Unlike a traditional 401(k), which offers tax-deferred growth and taxed withdrawals later, the Roth 401(k) provides tax-free income later in exchange for paying taxes on the contributions now.

A 401(k) plan that generally satisfies the non-discrimination rules for elective deferrals and employer matching contributions. For a 401(k) plan to be considered a Safe Harbor plan, employers must satisfy certain contribution, vesting and notice requirements.

A self-directed brokerage account (SDBA) is an investment account, often part of a retirement plan like a 401(k) or 403(b), that gives an investor the freedom to choose from a wide array of investments, such as stocks, bonds, and mutual funds, beyond the limited options typically offered by the core plan. Unlike traditional investment plans, the investor is solely responsible for researching, selecting, monitoring, and managing their investments within the SDBA, assuming all associated risks and costs.

Defined as a pension benefit plan that covers less than 100 participants as of the beginning of the plan year. The IRS does not require these plans to be audited.

A summary of the Form 5500 filed by the plan, provided annually to participants.

A document that explains the key features of a retirement plan in plain language for participants.

A feature of retirement accounts where taxes on contributions and earnings are postponed until withdrawal.

A third-party administrator (TPA) for retirement plans is an external organization hired by a company to handle the plan administration including plan design, regulatory compliance testing, non-discrimination testing, and preparing IRS and Department of Labor reports (e.g., Form 5500).

A defined contribution plan is generally considered top heavy if as of the last day of the prior plan year, the account value of the key employees represents more than 60% of the total account value. An additional employer contribution may be due on top heavy plans.

An individual or institution responsible for managing the assets held in a retirement plan trust.

The process by which an employee earns the right to keep employer-contributed funds in a retirement plan, usually based on years of service.