Annuities
Qualified Retirement Plans
Annuity
The following is a glossary of terms commonly used in the discussion of Annuities.
Accrued benefits Pension benefits that an employee earns based on his/her years of service at a company. Back to top
Accrued Benefit For Defined Contribution Plans this is the participant’s account balance. For Defined Benefit Plans it is the current value of the participant’s expected benefit at retirement which is calculated according to plan formula and the years of service completed by the participant. Back to top Adoption Agreement A fill-in-the-blank plan document which contains different options for such things as plan design, employee eligibility, vesting and distributions. Back to top Amendment A change in the terms of the existing plan document. Back to top Beneficiary A person named to receive plan benefits upon the death of a participant. Back to top Contribution A payment made to a plan fund by the employer and/or employee. Back to top Effective Date The date on which the plan first begins operations. Back to top Eligibility Requirements The conditions (usually age and service) that an employee must satisfy in order to participant in and benefit under the plan. The day on which an employee first meets all eligibility requirements is called the “Satisfaction Date”. Back to top Entry Date(s) The specified date or dates on which an employee may begin participation in the plan. Eligible employees are required to enter a plan no later than 6 months following the “Satisfaction Date”. Back to top Forfeitures Portions of a plan benefit lost by a plan participant who terminates employment before becoming fully vested under the plan’s vesting schedule. Back to top Highly Compensated Employee (HCE) (1) A more than 5% owner of the employer at any time during the current year or preceding year. (2) An employee who had compensation from the employer in excess of $90,000 for the preceding year. ($85,000 if the preceding year is 2001.) Back to top Keogh Plan A plan that covers self-employed individuals (sole proprietors, partners). Back to top Key Employee An employee who during the current year is: (1) A 5% owner of the employer; (2) A 1% owner with compensation greater than $150,000; (3) An officer with compensation in excess of $130,000. Back to top Nondiscrimination Testing Testing mandated by law to demonstrate that a plan does not discriminate in favor of Highly Compensated Employees. Back to top Non-Highly Compensated Employee (NHCE) Any employee who is not a “Highly Compensated Employee”. Back to top Non-Key Employee Any employee who is not a “Key Employee”. Back to top Owner-Employee A sole proprietor or a partner owning more than 10% of the partnership. Back to top Plan Administrator The individual or entity responsible for day-to-day activities and required plan reporting. Back to top Plan Sponsor The business that established the plan. Back to top Prototype Plan Document A model or form document featuring a fill-in-the-blank adoption agreement wherein the employer can select among various options for such things as plan design, eligibility requirements, vesting and distributions. Back to top Statutory Exclusions Classes of employees that need not be taken into account for purposes of “Nondiscrimination Testing”: (1) Those who have not satisfied age/service requirements; (2) Those who participate in a collectively bargained retirement plan; (3) Nonresident aliens. Back to top Top Heavy A plan in which more than 60% of the plan’s benefits are payable to “Key Employees”. Top Heavy Plans must provide minimum benefits and faster vesting for “Non-Key Employees”. Back to top Trust A legal entity established to hold and invest assets of the plan. Back to top Trustee The plan fiduciary that is responsible for the operation of the “Trust”. A plan fiduciary is a person who has discretionary control over the administration of an employee benefit plan or the management of plan assets and is subject to the fiduciary responsibility rules prescribed by Federal Law (ERISA). Back to top Vested Benefit The portion of a participant’s benefit that cannot be taken away even if he or she terminates employment. Vested Benefits are determined according to the plan’s “Vesting Schedule” Back to top Vesting The extent to which a participant is entitled to his or her “Accrued Benefit” upon termination of employment. Vesting is based upon length of service. Back to top Vesting Schedule The schedule that describes the rate at which a participant earns a vested benefit under the plan. Years of completed service are translated into vested percentages. Back to top Year of Service Under Federal law this is a 12-month period during which an employee works 1,000 hours or more. Back to top