Glossary of Pension Terms

This glossary is meant to help you understand commonly used pension terms. These are simplified definitions and do not replace or modify any definitions found elsewhere, such as laws, regulations, forms and instructions, or plan provisions.



Accrued Benefit – The benefit (sum of money, or annuity)attributable to a participant's account, due and payable at Normal, or, early Retirement Date, subject to Vesting. (See Vesting). In a Defined Benefit Plan the Accrued Benefit is an Annuity( unless legally converted to a Lump Sum ). In a Defined Contribution Plan the Accrued Benefit is the Participant’s Account Balance at Fair Market Value.

Actuarial Assumptions- The Assumptions that a Plan’s Actuary utilizes in a Defined Benefit Plan Valuation, such as Mortality, Interest, Discounts for Participants leaving Plan and projection of Salary increases.

Actuarial Equivalence- A computation which makes equivalent one form of Benefit Annuity to another form of Annuity. For example, a Life Annuity predicated upon the Annuitant’s Survival, under a set of Actuarial Assumptions may be equal to 90% of an Annuity that is guaranteed for 120 monthly payments or survival thereafter.

Adjusted Gross Income (AGI)- Gross income less IRS allowed deductions.

Aged Based Profit Sharing Plan- A Profit Sharing Plan that utilizes age, service, and compensation as the basis of the allocation formula.

Alternate Payee- A spouse or dependent recognized in a Domestic Relations Order having the right to receive a portion of the Participant’s Accrued Benefit in the future based upon certain stipulated conditions.

Annual Addition- The actual amount of Contribution either the Participant or Employer makes on behalf of such Participant annually subject to maximum IRS dollar and percentage of Compensation limitations.

Annuity- A series of payments based upon assumptions of interest, mortality and expenses that is paid to the Annuitant on a regular basis. An Annuity may be based upon Survival, with a front end period Certain only or based upon the life expectancy of two or more individuals. A Cost of Living feature may be included.

Annuity Starting Date- The date an Annuity shall begin to be paid to the Annuitant.

Anti-Alienation Provision- A clause which prevents a Participant’s Benefit from being assigned to another individual, such as a Creditor in bankruptcy.

Assets of the Plan- The value of Securities held by the Plan’s Trustees at a given date usually valued at Market, or an IRS approved method of smoothing year to year fluctuations of market value.

Bankruptcy- The inability of an Employer or Entity to pay obligations owed Creditors.

Beneficiary- A person named by a Participant or by the Plan or applicable law that is eligible to receive benefits from the Plan if the Participant is deceased.

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Cash-or-Deferred Plan - 401(k). A special type of Profit Sharing Plan, under the Internal Revenue Code, that allows the Employee/Participant to defer taxation of Compensation and in which an Employer may make a matching Contribution, subject to IRS Rules and Regulations.

Catch-Up IRA Contributions- A special provision of the Law after 2001 whereby an Individual who is older than age 50, by the end such taxable year, may make additional Contributions to an IRA or an Roth-IRA yearly up to maximum limitations.

Code- The Internal Revenue Code of 1986 as Amended by TRA ’86.

Collectively Bargained Plans- Plans that provide benefits under a negotiated agreement between a legally recognized entity, acting as the negotiating spokesperson for a group of Employees in a given industry pursuant to applicable law, such as a Union.

Combination Plans- A series of written Retirement Plans that may include a Defined Benefit and/or a Defined Contribution type of Plan that an Employer maintains on behalf of Employees to provide Benefits.

Common-Law Employee- A person who performs services for an Employer who is under the direct control of the Employer to perform such services.

Community Property- Property held by both spouses during the course of a legally recognized marriage, subject to the provisions of federal, state and local laws.

Comparability Plan- A type of Employee Benefit Plan designed with a specific formula that must satisfy certain stringent non-discriminatory provisions of Pension Law which equates Employer Contributions as an Accrued Benefit at Normal Retirement Date or an Accrued Benefit at Normal Retirement Date as a current Employer/Employee Contribution.

Contributory Plan- A Plan where both Employee and Employer contribute.

Controlled Group of Corporations- A group of Individuals or Entities whose actions pursuant to business are subject to applicable Federal laws which define such entities or individuals as one entity for purposes of certain taxation.

Court Order Acceptable For Processing- A Qualified Domestic Relations Order (QDRO)
that satisfies Plan provisions, local and federal tax law and is acceptable to both parties in a divorce proceeding.

Coverture Fraction – the fraction of Plan Assets based upon the numerator to equal length of marriage and the denominator to equal total service of the Plan Participant.

Curtailment of Plan-The reduction of Participants in a Qualified Retirement Plan subject to IRS Regulations and procedures, which require the Employer to fully vest such Participants/Employees, such as a division closing.

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Defined Benefit Pension Plan- A type of Pension Plan that provides as its retirement benefit an Annuity at the Participant’s Normal Retirement Date. The Employer may provide an option to convert the Annuity into a Lump Sum payment at Retirement.

Death Benefits- Written Benefits in a Qualified Retirement Plan attributable to a Participant dying while a Participant and in-service with the Employer which becomes payable to designated Beneficiary/Beneficiaries and must be “incidental” pursuant to Federal and State law of the underlying benefit of the Plan.

Defined Benefit Plan- A Plan which contains a defined Death Benefit.

Defined Benefit Excess Plan- A Defined Benefit Plan which defines a Benefit based upon a fixed percentage of Compensation in excess of a certain level or levels of average Compensation, such as a 20% pension in excess of $ 1,000 per month average Compensation.

Defined Benefit Offset Plan- A Plan whose Benefit is offset by the Social Security Benefit at Normal Retirement Date.

Defined Contribution Plan- A Plan whereby the Employer or Employee contributes a Defined Contribution to such Plan each year or by defined Formula, such Contributions grow at the actual investment earnings and are distributed at Retirement to the Participant.

Defined Contribution Excess Plan- A Plan that defines the allocation each year in excess of a stipulated amount or a defined wage base.

Direct Rollover- A Distribution that is transferred from one qualified Plan to another Eligible Retirement Plan as a Trustee to Trustee transfer.

Disability Benefit- A stipulated Benefit in a Qualified Plan based upon a Plan defined definition of Disability.

Discrimination- A condition which disqualifies a Qualified Plan whereby according to law the highly paid Employees, or, Shareholders or Key Employees receive a greater share of Allocations or Benefits than permitted under Federal, State, or, local law.

Disqualification- A Plan whose tax-exempt status has been revoked because of failure to requirements of the law.

Distress Termination- The forced termination of a Qualified Defined Benefit Plan by the Pension Benefit Guaranty Corporation because such Plan cannot meet or is unable to meet its obligations to Plan Participants.

DOL – Department of Labor

Domestic Relations Order (DRO)- A judgment or court order made subject to a state Domestic Relations law.

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Earliest Retirement Age- The earliest age at which a Plan Participant may receive benefits pursuant to the Plan and Trust.

Early Retirement Subsidy- A portion of the Early Retirement Benefit that is in excess of an Actuarially Equivalent Reduced Benefit.

Employee Retirement Income Security Act of 1974 as amended (ERISA)- A major Act which redefined Participants Rights under Federal Law for Qualified Retirement Plans, which has been amended almost every year since inception.

Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001)- This law enacted on June 7, 2001 raised Contribution limits to IRAs, Qualified Plans and liberalized many provisions of the then current law.

EGTRRA 2001-Economic Growth and Tax Relief Reconciliation Act of 2001

Elective Deferral- A Contribution not required to be made by a Plan Participant to a 401(k) Plan.

Elective Deferral Catch-Up Contributions- A special provision relating to 401(k) Plans for years beginning after 2001 where a Participant may make additional Contribution Deferrals, if over the age of 50 at the end of the Plan Year, which are not counted for certain testing purposes.

Eligible Retirement Plan- An IRA, a Qualified Retirement Plan, Tax-Sheltered Annuity or applicable Government Retirement Plan.

Eligible Rollover Distribution- A distribution from a Qualified Retirement Plan that may be rolled over to another Qualified Retirement Plan subject to applicable law.

Employee- An individual who provides services in return for Compensation to an Employer and whose employment is under the control and direction of the Employer.

Employee Contributions- Mandatory of Elective Contributions made by a Plan Participant under the terms of an Employer sponsored Plan.

Employee Stock Ownership Plan (ESOP)- A special type of Qualified Defined Contribution Retirement Plan whereby the Employer Stock is contributed to the Plan as the majority asset of such Plan.

Enrolled Actuary- Subject to the Employment Retirement Income Security Act of 1974 the Enrolled Actuary is a professional licensed by the Joint Board for the Enrollment of Actuaries to perform actuarial valuations for Defined Benefit Plans and has a limited right of representation of such Plans before the IRS, DOL and PBGC and to comply with the Employment Retirement Income Security Act of 1974 (ERISA) and subsequent laws.

Equitable Distribution- The distribution of marital assets in a divorce proceeding pursuant to state and local laws.

ERISA Qualified Plan- A Plan that fulfills all the requirements of ERISA and subsequent laws.

ESOP- Employee Stock Ownership Plan

Exclusive Benefit Rule- Plan fiduciaries must manage their Plans solely for the benefits of Participants and Beneficiaries and pay administrative expenses pursuant to the provisions of the Plan.

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Fiduciary- Any person who exercises discretionary control over the management or distribution of Plan assets or who gives investment advice to the Plan for a fee or other Compensation except those individuals who provide just purely educational advice .

Fiscal Year- The year of the Plan pursuant to Federal and State regulations.

5 Percent Owner- An individual who owns 5% or more of the stock or profit interest of the Employer.

Forfeitures- That portion of the Account that is distributed among on-going Participants of a Defined Contribution Plan by a Terminated Participant who is not fully vested.

401(k) Plan- A type of Profit Sharing Plan created under Section 401(k) of the Internal Revenue Code allowing Participants to defer Compensation (except for FICA & FUTA) whereby Participants are split into two groups – Highly Compensated and Non-Highly Compensated Employees and tested whereby Highly Compensated Participants as a group can defer the lesser of an average of 2% or two times the average deferral rate of the Non-Highly Compensated Participant group.

402(f) Notice-The required explanation of the Tax consequences of a Distribution from a Qualified Retirement Plan.

Frozen Plan- A Plan whose Accruals or Contributions have been suspended but continues to exist as a Qualified Plan subject to IRS Regulations

FSA- Funding Standard Account required to be maintained in all Defined Benefit Plans by the Enrolled Actuary or the Plan’s Sponsor.

Funding Deficiency – The excess of required Contributions in a Defined Benefit, Money Purchase or Target Benefit Pension Plan over total credits of the Funding Standard Account. This amount is subject to an Excise Tax unless IRS waives such tax and is called “the accumulated Funding Deficiency Account”.


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HCE- Highly Compensated Employee. An Employee who during the year or preceding year is or who was (a) a 5% or more Owner or (b) received Compensation in excess of
$ 80,000 adjusted for Cost of Living increases or (c) was a member of the top paid group of Employees subject to Employer election.

Health Insurance Portability and Accountability Act of 1996 (HIPAA ’96) -
Enacted on August 21, 1996, provides that Distributions from IRAs from 1997 or later will not be subject to the 10% early penalty withdrawal tax before age 59-1/2 if used to pay medical expenses in excess of 7-1/2 % of adjusted gross income. Furthermore, the 10% earlier than 59-1/2 distribution penalty tax shall not apply if used by unemployed or self-employed individuals to pay health insurance premiums.

Highly Compensated Employee (HCE)

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Individual Account Plan - A Plan that provides for individual accounts for each Participant to be set up and tract, so that at any Valuation date the value of the Account can be ascertained.


Insured Plan- A Plan that is funded exclusively through insurance policies or contracts.

Integrated Plan- A Plan subject to IRS Rules and Regulations that allocated Contributions or Accrues Benefits taking into account the Social Security Benefit payable at Retirement. An Integrated formula may be provided in both a Defined Benefit or Defined Contribution Plan.

Interested Parties-All Employees of the Sponsoring Entity at the time of the establishment and lifetime of the Plan or Beneficiaries of such Employees.

IRA- Individual Retirement Account or Individual Retirement Annuity. Any working Employee and certain divorced spouses receiving alimony may establish IRAs and receive deductions for Contributions subject to IRS Regulations. IRAs cease to be available when an Employee attains the age of 70-1/2.

IRB- Internal Revenue Bulletin- Weekly Bulletins provided by IRS on all tax matters.

IRC- Internal Revenue Code as of 1996 and as amended.

IRS- Internal Revenue Service – a sub-division of the United States Treasury Department.

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Joint and Survivor Annuity- An Annuity payable to the primary Annuitant and upon his or her death, a percentage of such primary Annuitant’s benefit is paid to the designated Beneficiary.

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Keogh Plan- A Defined Benefit or Defined Contribution Plan that covers self-employed individuals and common-law employees of such entity.

Key Employee- A Participant at any time during the Plan year who was (a) an officer (defined under IRC 416 with annual Compensation greater than $ 130,000 subject to Cost of Living Adjustments, or (b) a more than 5% Owner of the Employer, or (c) a more than 1% Owner whose annual Compensation exceeds $ 150,000.00.

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Leverage ESOP- An Employee Stock Ownership Plan that borrows to acquire Employer Company Stock.

Lump-Sum Distribution- An IRS approved form of Distribution utilized in the forward averaging method for computing income tax due. Requirements to qualify for Lump Sum Distribution are (a) the distributions must be made within one taxable year of the recipient and must include the entire account balance or Accrued Benefit of the Participant, and (b) it must be made on account of the Employee’s death, separation from service or attainment of age 59-1/2. For a self-employed individual only on account of Disability. In-Service Distributions do not qualify as Lump Sum Distributions.

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Mandatory Employee Contributions- Contributions made by the Employee/Participant pursuant the requirements of a Qualified Plan.

Marital Property- Property under state and local law which is determined to have been in use during the life of the marriage and is therefore divisible upon divorce.

Matured Plan- A Plan that is presently providing benefits to Plan Participants.

Minimum Funding Standard Account- The amount to be determined by the Enrolled Actuary pursuant to the Funding Standard Account of Employer Contributions deemed to be contributed by the Employer each year.

Money Purchase Pension Plan- A Defined Contribution Plan that is subject to Minimum Funding which provides Contributions based on Participant’s Compensation and/or Service each year.

Multiemployer Plan- A Qualified Retirement Plan maintained through good faith bargaining under a Collective Bargaining Agreement that encompasses Employees of more than one Employer.

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Named Fiduciary-A fiduciary specified in the Plan document or identified through a set of rules of the Plan. A name fiduciary can designate authority to carry out his/her fiduciary responsibilities.

NHCE- Non-Highly Compensated Employees. All Employees of the Controlled Group who are not designated as Highly Compensated.

Noncontributory Plan- A Retirement Plan in which only the Sponsoring-Entity contributes and funds the Plan.

Nonelective Contribution- A contribution to a 401(k) Plan in which the Participant elects to defer compensation and tax on such Compensation (subject to FICA & FUTA) rather than receive such Compensation and pay full tax on such Compensation in the current Plan Year.

Nonforfeitable Benefit- It is a Benefit that is 100% Vesting or not subject to any degree of Vesting. The Plan Sponsor cannot take away is any manner shape or form.

Non-Highly Compensated Employee (NHCE)

Notice of Intent to Terminate (NOIT)- A required 60 day advance to all Interested Parties advising of the proposed Standard Termination of such Defined Benefit Plan covered by PBGC.

Notice of Plan Benefits- Required Notice to Plan Participants, Beneficiaries and all Interested Parties to advise of their Accrued Benefits under a Terminated Defined Benefit Plan covered by PBGC.

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Officer- An IRS defined Individual subject to Section 414 of the IRS Code who maintains executive responsibilities over the Plan Sponsor Entity.

Old Age, Survivors and Disability Insurance (OASDI) – The payroll tax imposed by an Act of Congress to fund Social Security and Medicare.

Owner-Employee- A sole proprietor or partner who owns more than 10% of the profits or proprietary interest in the partnership.

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Party in Interest- Any person who because of his or her relationship with the Plan (such as a Plan Provider of Services or Plan Sponsor) is prohibited from entering into any financial arrangements with the Plan.

Pension Benefit Guaranty Corporation (PBGC) – A Government Agency, created under ERISA, that guarantees Defined Benefit Pensions , subject to annual insurance liminations.

Pension Plan - A Retirement Plan that provides payments to Plan Participants.

Plan Year – Any consecutive, IRS approved, year of record (usually a 12 month year) adopted by the Employer.

Profit Sharing Plan A defined Contribution written Plan whose contributions are either specified in the Plan document, or determined by the Plan Sponsor on a year to year basis. A Profit Sharing Plan may be adopted by a Tax Exempt Organization, or subject to profits of the Plan sponsor.

Prohibited Transactions – Specific types of transactions that may not be engaged in by the plan’s “Parties-In-Interest” not subject to Department of Labor exemptions. An example of a Prohibited Transaction is the ownership of Employer property in a Defined Benefit Plan.

Prototype Plans – A master Plan that is sponsored by a financial Institution, or IRS approved Sponsoring entity that has been approved by the IRS and may be adopted by
Entities. The Prototype Plan IRS approval only covers the terms of the Plan and not the
operation of the Plan by individual adopting entities.

Prudent-Person Rule – A standard that requires each Fiduciary to act “with the care, and skill ,prudence, and diligence under each set of circumstances that a “prudent individual”
would exercise in a given environment.

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Qualified Domestic Relations Order (QDRO) A court order, subject to state law, that specifies child support, alimony payments, or division of Marital Property that specifies
an Alternate Payee to receive benefits.

Qualified Joint and Survivor Annuity (QJSA) A life annuity for the Plan Participant, and
a minimum 50% Survivor Annuity , but not more than 100%, for the Participant’s Spouse upon the death of such Plan Participant.

Qualified Retirement Plan (Qualified Plan) – A plan, that meets, each year, the requirements of the Internal Revenue Code Section 401(a). Employer contributions receive a current year deduction, funds grow tax free ( except loan leveraged funds) and are not taxed until a taxable event based upon distribution to a Plan participant.

Qualified Replacement Plan – A plan in which 25% of the reversion dollars are made into
A separate qualified plan for plan sponsor entity employees, in order to reduce the excise tax from 50% to 20%.

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REA – The Retirement Equity Act of 1984 that required Spouse approval on changes in Beneficiaries other than the spouse and loans. The lay also broadened eligibility and vesting rights.

Reportable Event – Certain events, relating to Defined Benefit Plans subject to PBGC
jurisdiction. that indicate the plan is in financial danger.

Required Beginning Date - The date that that distributions must begin for IRA participants and 5% or more Shareholder participants of qualified retirement Plans.

Required Minimum Distribution – The minimum distribution that must be
Distributed subject to IRS Regulations beginning the Required Beginning Date.

Rev Proc – A Revenue Procedure issued by the IRS that specifies procedures.

Rev Rule – A public Revenue Rule applied to a specific section of the IRS Code.

Reversion of Employer Contributions – The return of Employer Contributions, subject to a Plan termination and applicable IRS Regulations.

Rollover – A tax Free transfer to funds from one qualified plan to another on behalf of the Plan participant.

Rollover IRA Account – A tax free transfer of funds to an IRA account/.

Roth IRA - An special type of IRA, subject to IRS Eligibility Regulations and Limitations, whereby funds are non deductible and distributions are non taxable.
Contributioans, unlike IRA’s, can be made to a Roth IRA after age 70 ½.

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S Corporation – A Corporate entity whose shareholders have elected not to be taxed as a regular Corporation, but like a partnership with profits attributed to the individual owners.

Savings Incentive Match Plan for Employees (SIMPLE) A simplified retirement Plan with profit sharing and 401(k) like provisions.

Self-Employed Person – a Sole Proprietor or partner of an entity.

Shareholder-Employee A more then 5% shareholder of an S Corporatio

Simplified Employee Pension (SEP) A Simplified Retirement Plan that resembles an IRA and requires minimum reporting requirements.

Social Security Retirement Age (SSRA) – The retirement age as specified by the Social Security Act of 1984 based upon on date of birth.

Split-Funded Plan – A qualified Plan that is funded by Insurance Contracts and a separate investment fund.

Spousal IRA - An IRS established for a non working spouse.

SSRA – The Social Security Retirement Age as mandated by applicable law.

Standard Termination – A termination of a single-employer Plan, subject to PBGC Regulations, that pay all accrued benefits of the Plan.

Stock Bonus Plan – A Defined Contribution Plan whereby contributions are made from Employer Stock

Summary Plan Description (SPD) A retirement Plan description, in simple language, that describes the provision of the Sponsor Plan.

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Target Benefit Plan – A separate account, Defined Contribution Plan, whose participant allocation is determined based upon a projected benefit. Gains and Losses are valued each year as a Defined Contribution Plan.

Tax-Sheltered Annuity (TSA) – A special type of annuity , available only through tax exempt employers who qualify for 501(c)(3) status.

Thrift Plan – A Defined Contribution Saving Plan, whereby employer contributions are greared to Mandatory contributions of the Employee.

Top-Heavy Plan – A Plan, commending in 1984, whereby more then 60% of the assets of the required aggregated Plan assets benefit IRC code defined Key Employees, and that required minimum Employer Contributions, and vesting provisions, are provided Plan participants.

Trust a fund subject to State4 and local law, by Plan appointed trustees, to administer plan assets.

Trustees – Parties named in the trust agreement to administer a Trust Fund.

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Unrealized Appreciation (Depreciation) <Passive Appreciation/Depreciation>

Unit Benefit Plan – A Defined Benefit Plan that bases it retirement formula upon a unit of benefit as per unit of service.

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Vested Benefits – A portion of the participants accrued benefit that is non-forfeitable.

Voluntary Contributions – A portion of Plan Compensation , subject to IRS Regulation and plan provisions, that an Employee may contribute to a Defined Contribution Plan.

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Year of Service – A 12 month period whereby an employee receives credit for al least1,000 hours of service. A Year of Service may be defined separately for Eligibility Credited Service, and Vesting.

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