A cost charged to shareholders to pay for a mutual fund’s distribution and marketing costs.
An employer-sponsored defined contribution plan that allows participants to defer part of their compensation on a pretax basis to save for retirement. 401(k) refers to the section of the Internal Revenue Code (IRC) that describes this arrangement. 401(k) plans are often referred to as “cash or deferred arrangements” (CODA)
402(g) limits (employee elective deferral limits)
The maximum amount of elective deferral contributions a participant may make to any employer-sponsored, tax-qualified retirement plan(s). The 402(g) limit is an annual individual limit covering all deferral contributions regardless of plan(s). All elective deferral contributions to any tax-qualified retirement plan are subject to 402(g) limits, which are adjusted annually to reflect increases in the cost of living (COLA).
An annuity contract or custodial account that meets the requirements of Section 403(b) of the IRC. Only employees of certain public schools, universities and tax-exempt organizations described in section 501(c) (3) of the IRC are eligible to establish 403(b) arrangements. The Treasury Department issued final 403(b) regulations that will cause administrative changes in the way current 501(c)(3) organizations, churches, schools and hospitals do business.
404 limit — employer deductible contribution limit
The maximum annual deduction permitted by an employer for federal income tax purposes with respect to tax-qualified, retirement plan contributions (employer contributions). 404 refers to the section of the IRC that sets the limit. Separate limits apply to defined contribution plans and defined benefit plans. The defined contribution limit is an aggregate limit covering all contributions by an employer to any defined contribution plan(s). The annual defined contribution plan deduction limit is 25% of eligible compensation earned by all plan participants for that year.
Regulations that relieve a plan fiduciary of liability for investment decisions made by retirement plan participants who have the ability to exercise control over their plan account investments, provided certain other conditions are met. Compliance with 404(c) is optional.
415 limit — annual additions limit
The annual contribution limit to a participant account. This limit includes all contributions except rollover and loan repayment. 415 refers to the section of the IRC that sets the limit. Separate limits apply to defined contribution plans and defined benefit plans. The defined contribution limit is an aggregate limit. All annual additions to the account of a participant − under all tax-qualified defined contribution retirement plan(s) maintained by the employer − are counted against the limit. The annual defined contribution plan 415 limit for a year is generally the lesser of 100% of the participant’s eligible compensation for a year or a specified dollar limit, which is adjusted annually to reflect changes in the cost of living.
Administration and recordkeeping expenses
Fees for administrative and recordkeeping services pertaining to plan participants. For start-up or takeover plans, these fees typically include charges associated with processing information from the previous service provider and mapping participant information.
ADP/ACP nondiscrimination tests
Annual annuity fee
All plans with more than 100 participants are required by federal law to undergo an annual audit conducted by an independent auditor. A Department of Labor (DOL) or IRS examination of a plan is commonly referred to as a plan audit.
Annuity and stable value/GIC surrender charges
Automatic deferral default percentage
A plan feature that allows an employer to enroll employees in a salary deferral plan without the employees’ initial consent, as long as employees have the right to “opt out” of contributing to the plan. Also known as “negative election”.
Balance inquiry expense
Break in service
Cafeteria plan (Section 125)
Collective investment fund
Contract administration charge
Contract termination charge
Defined benefit plan
Defined contribution plan
Education program expenses
Eligible investment advice arrangement
Employee Benefit Security Administration (EBSA)
Exclusive benefit rule
Fiduciary (under ERISA)
- Exercises any discretionary authority or discretionary control with respect to management of the plan or exercises any authority or control with respect to management or disposition of assets.
- Renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of the plan, or has any authority or responsibility to do so.
- Has any discretionary authority or discretionary responsibility in the administration of the plan.
ERISA section 3(21)(A)(ii) sets out a simple two-part test for determining fiduciary status: A person or party who (1) renders investment advice with respect to any moneys or other property of the plan, or has any authority or responsibility to do so; and (2) receives a fee or other compensation, direct or indirect, for doing so.
Hardship of in-service distribution
- Owned more than 5% of the employer business at any time during the year or preceding year
- For the preceding year, received compensation of more than a specified dollar amount that is adjusted annually to reflect increases in the cost of living, and if elected by the employer, was in the top 20% of employees when ranked by compensation
Individually designed plan
Individually managed account
Investment management fee
- Has the power to manage, acquire or dispose of any asset of the plan
- Is registered as an investment advisor under the Investment Advisors Act of 1940; is registered as an investment advisor under the laws of the state where the principal office and place of business is located; is a bank; or is an insurance company qualified to perform services under the laws of more than one state.
Investment policy statement
Investment transfer expense
- Is an officer of the company that sponsors the plan and earns income in excess of a specified dollar amount that is adjusted annually to reflect increases in the cost of living.
- Owns more than 5% of the company that sponsors the plan.
- Is a 1% owner of the company that sponsors the plan, with income of more than $150,000.
Life cycle fund
Money purchase plan
Mortality risk and administrative expense
New comparability allocation
A type of allocation formula for profit sharing plans that allocates disproportionately greater amounts to a specific group of employees. (Also see profit sharing plan.) The formula is generally designed to maximize the amounts allocated for HCEs within the contribution nondiscrimination limits established by the IRC.
New comparability profit sharing plan with a safe harbor 401(k)
Nondiscrimination testing expense
Nonqualified deferred compensation plan
Permitted disparity (integrated) allocation formula
Plan document/IRS filing fee
Profit sharing plan
A defined contribution plan that permits the employer to make discretionary contributions. A participant’s retirement benefits are based on his or her account balance, which consists of profit sharing contributions, investment earnings and forfeitures. (Also see age-weighted allocation, new comparability allocation, permitted disparity (integrated) allocation formula, and salary ratio allocation.) A single plan can contain both a profit sharing and an elective deferral feature.
Documents that provide standard language for different types of retirement plans that offer flexible options within each plan type. Prototype plan documents are sponsored by financial institutions and adopted by employers to create the plan. There are both standard and nonstandard prototypes. Standardized prototype documents are less flexible than nonstandardized prototype documents. Employers who adopt prototype plans are not required to obtain IRS approval (letter of determination) for their plan documents; however, this is a good practice for nonstandard documents.
Prudent man rule
- Does not automatically enroll current employees who:
- Were eligible to participate in the plan before the automatic enrollment arrangement became qualified
- Had deferral elections (or elections not to defer) in place when the automatic enrollment arrangement became qualified.
- Requires that employees who are eligible to participate in the qualified arrangement receive written notice of their legal rights and obligations within a reasonable time prior to the start of the plan year.
- Provides that employer contributions become 100% vested after an employee has completed no more than two years of service.
- Requires that the plan sponsor make either matching contributions (100% of the first 1% of compensation deferred, plus 50% of the next 5% deferred) or nonelective contributions (at least 3% of compensation to all eligible nonhighly compensated employees, whether they make deferrals or not).
- Provides for an automatic contribution percentage of at least a minimum specified percentage that ranges from 3% to 6% (depending on how long contributions have been made for the employee), but not more than 10%. This provision offers guidelines for the step-up feature which increases the automatic deferral by 1% per year. (Also see automatic enrollment.)
- A product with a mix of investments that takes into account the individual’s age or retirement date (e.g., a lifecycle or target-retirement-date fund)
- An investment service that allocates contributions among existing plan options to provide an asset mix that takes into account the individual’s age or retirement date (e.g., a professionally managed account)
- A product with a mix of investments that takes into account the characteristics of the group of employees as a wole, rather than each individual (e.g., a balanced fund)
- A capital preservation product for only the first 120 days of participation (e.g., a stable value fund)
- With a direct rollover the distribution is paid directly to the trustee or custodian of the receiving arrangement.
- With an indirect rollover, an individual takes a cash distribution from a qualified plan (less 20% withholding) and contributes it (rolls it over) within 60 days of receiving the arrangement.
- A direct transfer of assets between IRAs may also be referred to as a direct transfer of assets.
Roth 401(k) contributions
Safe harbor 401(k) plan
Salary ratio allocation
A type of allocation possible within a profit sharing plan, which allocates contributions as a flat percentage of compensation among all eligible employees. (Also see profit sharing plan.)
Salary reduction agreement
Self-directed brokerage fees
- Class A shares typically impose a front-end sales load and tend to have a lower 12b-1 fee and lower annual expenses than other mutual fund share classes. Some mutual funds reduce the front-end load as the size of an investment increases.
- Class C shares generally have a level load and might include a 12(b)-1 fee, other annual expenses and either a front- or back-end sales load.
- Class I shares are often called institutional shares, because they are generally intended for financial institutions purchasing shares for their own or their clients’ accounts. Class I shares have no front-end sales charge and cannot be purchased by the general public.
- Class R shares are typically provided exclusively to retirement plans and charges can vary based on the plan’s requirements and recordkeeping preferences.
Stable value fund
Subaccount transfer fee
Summary plan description (SPD)
Target benefit plan
Target date fund
Costs associated with terminating a relationship with a service provider, permanent termination of a plan or termination of specific plan services. Also called “surrender” or “transfer” charges.