A 401(a) plan refers to any qualified retirement plan including a defined benefit, money purchase or profit-sharing plan.
That section of the Internal Revenue Code defining qualified plan distribution requirements, such as required beginning date and minimum distribution amounts.
A qualified profit-sharing plan that contains a cash or deferred arrangement (CODA) allowing employees to defer income on a pre-tax basis. A 401(k) plan allows employee pre-tax contributions and may also permit employer contributions and/or employee voluntary after-tax contributions. Governmental employers may not sponsor 401(k) plans unless the plan was adopted prior to May 6, 1986.
A deferred compensation plan maintained by state and local governments through which employees may defer a portion of their salaries until a later date, usually retirement. A growing number of state and local governments are making employer contributions to these plans.
A mutual fund or diversified fund that invests in stocks that are expected to have rapidly increasing earnings, offering the potential for rapid returns. These stocks generally represent investments in smaller or newer companies. There is little or no emphasis on dividend income. These funds tend to be the most volatile types of funds, but may have significant long-term return potential.
The percentage of every contribution that the participant elects to invest in each of the plan’s investment fund options, subject to employer restrictions, for different contribution types (employer, employee and portable benefits/rollover sources). (See also “reallocation.”)
“Alpha” is a measure of the difference between a fund’s actual returns and its expected performance, given its level of risk as measured by beta. A positive alpha figure indicates the fund has performed better than its beta would predict. In contrast, a negative alpha indicates the fund has performed worse than its beta would predict.
A spouse, former spouse, child or other dependent of a participant who is recognized by a domestic relations order as having the right to receive all or a portion of the benefits under a plan that would otherwise be payable to the participant.
(1)Reducing debt by repaying the principal with interest, usually according to a schedule established as one of the conditions of the loan. For example, a 30-year mortgage is amortized by regular monthly payments. (2)Amortization also refers to the practice of averaging the initial cost of an investment over its lifetime to calculate a real return.
annual percentage rate
The cost of credit, expressed as a simple annual interest. Abbreviated APR. (See “interest rate”)
A contract between a buyer and an insurance company. In return for payment, the insurer agrees to invest the money on a tax-deferred basis and pay an annuitant, usually the purchaser, a certain sum of money for a specified time, usually for the life of that person.
Anything having commercial or exchange value owned by an individual, business or institution.
Dividing or apportioning of investment funds among different asset classes such as stocks, cash equivalents or bonds; or subsets of asset classes, such as corporate bonds, Treasury bonds and municipal bonds. Asset allocation affects both risk and reward in investing and is an important concept in financial planning and investment management.
asset allocation funds
Mutual funds that invest in a mix of stocks, bonds and cash equivalents. These funds typically shift assets among asset classes in response to changing market conditions.
Charges consisting of a percentage of an account’s assets and subtracted from the assets before share values are calculated. Investment management and plan administration fees are examples.
Asset Class Guidance
Provides participants with a recommendation on how to allocate their accounts among asset classes.
Different categories of assets, according to their attributes, such as cash equivalents, stocks or bonds.
average contribution percentage (ACP) test
A nondiscrimination test outlined in IRC Section 401(m) for plans which include after-tax employee contributions. The test compares the average contributions of highly compensated employees to the average contributions of all other employees in the plan. Governmental plans are exempted from this test.
average deferral percentage (ADP) test
A nondiscrimination test outlined in IRC Section 401(k)(3) for 401(k) profit-sharing plans which allow pre-tax employee deferrals. The test compares the average deferrals of highly compensated employees to the average deferrals of all other employees in the plan. Governmental plans are exempted from this test.
average effective duration
“Average Effective Duration” is a measure of the expected change in value of a fixed income fund/security for a given change in interest rates and is one measure of a fixed income fund/security’s price sensitivity to shifts in interest rates. The longer a fixed income fund/security’s duration, the more sensitive its price is to shifts in interest rates. Effective duration is determined by a formula that includes coupon rates and bond maturities and duration is normally stated in years. The average effective duration of a fund is the weighted average of the effective durations of the fixed income securities in a fund.
average effective maturity
“Average Effective Maturity” is a measure of interest rate sensitivity of the fund. The longer a fixed income fund/security’s effective maturity, the more sensitive its price is to shifts in interest rates. Effective maturity is determined by a formula that includes mortgage prepayments, puts, and adjustable coupons and maturity is normally stated in years. The average effective maturity of a fund is the weighted average of the effective maturities of the fixed income securities in a fund.
A portfolio which seeks total return by investing in a combination of stocks, bonds and cash in proportions that vary within established percentage ranges.
A person designated to receive the assets remaining in an account following the designator’s death. Also referred to as primary beneficiary. (See also “contingent beneficiary.”)
“Beta” is a measure of a fund’s sensitivity to market movements. The beta of the market is 1.00 by definition. A fund’s beta can be calculated by comparing its excess return over Treasury bills to the market’s excess return over Treasury bills, so a beta of 1.10 shows that the fund has performed 10% better than the market in up markets and 10% worse in down markets, assuming all other factors remain constant. It should be noted that a low beta for a fund does not necessarily imply that the fund has a low level of volatility. A low beta signifies only that the fund’s market-related risk is low.
A fixed income debt security. Bonds may be issued by corporations or governments (both federal and municipal), and pay a set amount of interest, payable on a predetermined schedule over a predetermined number of years, until maturity. At maturity, the bond issuer repays the principal amount of the debt obligation, usually denominated in $1000 increments. Bonds are generally issued with maturities from one to 30 years. Bondholders are creditors of the issuer.
Mutual funds or diversified funds invested entirely in fixed income securities. Bond funds generally seek to generate a steady stream of income. A bond fund may be invested in one segment of the bond market (such as Treasury bonds) or several, depending on the fund’s investment objective.
A written plan under which all participants choose among two or more benefits that consist of cash and certain qualified benefits, including cash or deferred arrangement (CODA). Also referred to as a Section 125 plan.
The growth in value of an asset due to an increase in its market price.
Very short-term fixed income investments, such as Treasury bills and money market funds, which may be easily, safely and immediately converted into cash.
catch-up provision (457)
A provision for 457 participants nearing retirement to defer additional amounts of their current salary as a “catch-up” for contributions not deferred in previous years ("unused deferrals").
In addition, 401, 457 and IRA participants age 50 or older may make additional catch-up contributions that are not related to unused deferrals.
collectively bargained plan
A plan maintained as a result of a collective bargaining agreement between employee representatives and one or more employers.
The effect of continual reinvestment of compound interest (See “compound interest” and “reinvestment”).
Interest earned on principal plus the interest that was earned earlier. For example, $100 invested at 10% will earn $10 after one year for a total of $110. At the end of the second year, if compounded at the same 10% rate, the investor will earn $11 and the investment will total $121. (The additional $1 earned on the $10 earned earlier is the compound interest.) Interest can be compounded annually, quarterly, half-yearly, daily or other basis. In the case of stock investing, dividends may be compounded by buying more shares of the issuing stock or fund.
Contractual Fee Waiver (or Expense Reimbursement)
A fund service provider, such as an investment adviser, will on occasion enter into a contract with a fund wherein the service provider will agree to waive its fee or reimburse expenses as a means to reduce the fund's total operating expenses over a period of time. The fund may disclose this fee waiver/expense reimbursement if the agreement is for a period of at least one year or more, and includes the termination date, and briefly describes who can terminate the arrangement and under what circumstances.
A person or institution to whom a money debt is owed.
An IRS doctrine specifying that an investor becomes liable for taxes on a tax-deferred investment as soon as the investor acquires actual or constructive possession of the funds. The assets remain tax-deferred as long as the investor does not withdraw or dispose of them.
Category of beneficiary(ies) named by the plan participant who are to receive plan death benefits should no primary beneficiary(ies) outlive the participant. (See also “beneficiary.”)
Payment made by the employer, participants or both into a retirement account. While the funds’ sources may vary based on the type of plan adopted, the employer sends the total payment by either check or wire to the Trust. (See also “contribution detail.”)
Information from the employer that accompanies contribution funds and identifies which participant accounts should receive specific amounts of the money as well as the source(s) of the money. The submission must be on the proper forms, EZLink, electronic data transfer (EDT) or magnetic tape and also reflect such changes as new participants and rehired participants. (See also “contribution.”)
Limits to annual contributions or deferrals of salary to 401 or 457 plans. These limits are specified in various sections of the Internal Revenue Code. See specific plan information for the limits applicable to that plan.
An administratively specified employee/employer annual contribution to a participant’s account. RC 401 plans do not have minimums, nor do standard 457 deferred compensation plans. The 457 PTS plan has a minimum contribution of 7.5% of a participant’s compensation.
A plan which results from an employer converting an existing defined benefit pension plan to a 401 defined contribution plan. Defined contribution plans have the advantage of portability, no funding liabilities, participant control of investments, ease of administration, and lower administrative costs.
Period of employment during which an employee is a participant in an employee benefit plan.
The value of ICMA-RC shares calculated at the close of each business day at the New York Stock Exchange (4:00 PM, Eastern Time).
Calculating the value of an asset at the close of each business day.
date of employment
The first day a participant actually performed services for the employer. It is frequetnly used for such calculations as determining when the participant becomes fully vested in the employer’s plan. Abbreviated as “DOE.”
Latin for “of little importance.”
For 457 plans, (1) accounts of less than $1,000 will be distributed to the participant at ICMA-RC’s discretion if certain conditions have been met (can be prior to separation from service) or (2) accounts of $1,000 to $5,000 may be distributed to the participant at the request of the participant or employer if certain conditions have been met (can be prior to separation from service). (See small balance withdrawals.)
Declaration of Trust of the ICMA Retirement Trust
This document provides the legal authority for the Trust to undertake the necessary investment actions on behalf of all employers who adopt the Trust. This declaration is included in both 457 and 401 plan adoption packages and must be executed by the legislative bodies governing the employers before any contributions may be accepted into the Trust. Informally known as the “trust agreement.”
Failure of a debtor to make timely payments of interest and principal as they come due or to meet some other provision of an indenture. In cases of default, holders may make claims against the assets of the issuer in order to recoup their principal.
default payment date
The date that benefit payments to a 457 plan participant begin if no other beginning payment date is elected (generally age 65). 401 Plans use the IRS minimum required distribution date as the default.
deferred compensation plan
Among government employers, an eligible deferred compensation plan refers to a Section 457 plan. (See also “457 plan.”)
defined benefit plan
A plan which promises an employee a specific pension benefit upon retirement, usually paid as a lifetime annuity. The employer calculates the retirement benefit based on a formula that usually considers the employee’s years of service, an average of the last 3-5 years’ salary and a percentage multiplier. Funding comes from yearly employer contributions based upon actuarial calculations. The plans may also require or allow employee contributions. Because employer contributions are based upon estimates and projections, defined benefit plans can face the problem of under funding.
defined contribution plan
A plan which provides for an individual account for each participant and for benefits upon retirement based solely on the amount contributed to the participant’s account and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant’s account. Examples of such plans would include money purchase retirement plans, profit-sharing plans, stock purchase plans, and thrift and savings plans.
The transfer of all or part of the funds in a qualified plan directly to another qualified plan or an Individual Retirement Account. If a direct rollover is made, the distribution is not taxed. (See also “eligible rollover distribution,” “rollover.”)
A condition documented by medical evidence of a certificate from the Social Security Administration permitting early vesting and account withdrawals before normal retirement age.
A brochure or booklet that contains information about securities offered by an issuer of those securities. Making Sound Investment Decisions: A Retirement Investment Guide is the Trust disclosure document.
A method of funding a 401 profit sharing plan where the employer determines annually the amount of the employer contribution to the plan. The contribution may even be zero in a given year, although employer contributions must be “substantial and recurring.” Any employer contribution made to the plan in a year is credited to plan participants. A participant’s share is generally determined by calculating what percentage of the total sum of the salaries for all plan participants is represented by the participant’s individual salary.
The investment technique of spreading risk among securities and asset classes.
An investment fund that shares the same characteristics as a mutual fund, but that may not be registered with the Securities and Exchange Commission (SEC). (See “mutual funds”).
In stock investing, a portion of the company’s earnings distributed in cash (or occasionally in the form of more stock) to stockholders, at the discretion of the company’s board of directors. In mutual funds, dividends represent the accumulated investment income (from interest and dividends) from securities held in the portfolio, paid to shareholders.
dollar cost averaging
A method of investing a regular amount of dollars at set intervals of time, regardless of market fluctuations. The investor buys more shares when the market is low and fewer when the market is high, resulting in an overall cost that is lower than if the investor bought the same number of shares at set intervals.
1. Gain or loss from investments, either from gain (loss) of principal or through accumulation of income from interest and/or dividends. 2. With respect to stocks, the net profit, after taxes from a company’s business. (See “earnings per share.”) 3. In reference to participant earnings, earnings are generally equal to participant compensation and more specifically are defined in Section 2.09 of the ICMA Retirement Corporation Governmental Money Purchase Plan and Trust Basic Document and Section VII of the Governmental Adoption Agreement (Adoption Agreement).
earnings per share
Net profit (after taxes and interest paid to bondholders, etc.) allocated to each outstanding share of stock. For example, a corporation that earned $10 million last year and had 10 million shares outstanding would report earnings of $1 per share.
The date that a plan is implemented and from which contributions are required. This date may differ from the date the plan is adopted.
Specifications written into a plan document defining which employees are eligible to participate in the plan. An employer may specify such criteria as minimum age and years of service.
eligible domestic relations order
A domestic relations order recognizing the rights of an alternate payee to receive all or a part of a participant’s deferred compensation account (457) at the time when the participant becomes eligible to receive a distribution.
eligible rollover distribution
A distribution from a qualified plan that may be rolled over to another qualified plan or an IRA. This is generally all taxable distributions (distributions of employer contributions, employee pre-tax contributions, and earnings) from a qualified plan except for annuities and other periodic payment streams of 10 years or greater and required distributions after age 70 1/2 or retirement. (See also “direct rollover.”)
(See “unforseeable emergency withdrawal.”)
Employee Retirement Income Security Act (ERISA)
Abbreviated ERISA, it completely overhauled, in 1974, the federal pension law to protect the interests of retirement plan participants and their beneficiaries. ERISA established a new set of rules for participation in retirement plans, adding mandatory schedules for the vesting of benefits, fixed minimum funding standards, set standards of conduct for administering the plan and handling plan assets, required disclosure of plan information, and established a system for insuring the payment of pension benefits (defined benefit plans only). Governmental employers are exempt from ERISA.
Net ownership of an asset. For example, an investor who owns a building worth $100,000 but must pay mortgage of $70,000 is said to have $30,000 of equity in the property. Since stocks represent ownership of a company, stocks are called “equity investments” and a stockholder is said to have equity in the corporation. (See also “stocks”).
equity income fund
A portfolio composed primarily of equities which seeks relatively high current income and growth of income.
The Employee Retirement Income Security Act. In 1974, ERISA completely overhauled the federal pension law to protect the interests of retirement plan participants and their beneficiaries. ERISA established a new set of rules for participation in retirement plans, adding mandatory schedules for the vesting of benefits, fixed minimum funding standards, set standards of conduct for administering the plan and handling plan assets, and required disclosure of plan information. ERISA also established a system for insuring the payment of pension benefits (defined benefit plans only). Governmental employers are exempt from ERISA.
expense reimbursement (or contractual fee waiver)
A fund service provider, such as an investment adviser, will on occasion enter into a contract with a fund wherein the service provider will agree to waive its fee or reimburse expenses as a means to reduce the fund's total operating expenses over a period of time. The fund may disclose this fee waiver/expense reimbursement if the agreement is for a period of at least one year or more, and includes the termination date, and briefly describes who can terminate the arrangement and under what circumstances.
The annualized amount, expressed as a percentage of your total investment, that you will pay annually for the fees and expenses of the fund and any underlying fund before any waivers.
The amount shown is the gross expense less any fee waivers or expense reimbursements.
expenses, annual VantageTrust operating
an expense of the VantageTrust Funds that covers the operating expenses.
A group of funds managed by the same investment management company. Each of the Vantagepoint Funds has a different objective (e.g., Growth Stock Fund, Core Bond Fund), and investors may generally shift assets between the funds at no charge.
A person, company, or association who exercises discretionary authority over the management of another’s assets or holds assets in trust for a beneficiary. The fiduciary renders investment advice for a fee, or is charged with the responsibility of investing the money wisely for the plan.
A default payment schedule that will deplete an account if the beneficiary of a deceased plan participant does not elect another payment schedule option.
(See “international investments.”)
The recapture by the employer of nonvested employer contributions. Used to pay plan expenses or for future employer contributions.
forfeiture account (401)
An employer account under a qualified plan into which forfeited amounts from the plan are held. Under ICMA-RC’s Governmental 401 Plan, funds in the forfeiture account may be used by the employer toward future employer contributions to the plan, or plan expenses.
forfeiture reinstatement (401)
Reinstatement of the forfeited non-vested portion of a 401 plan for a participant who separated from service but was rehired within a five-year period.
Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. This form is used to report to the IRS distributions from ICMA-RC’s 401 and 457 plans.
Wage and Tax Statement. Form W-2 is filed by employers with the IRS and state revenue bureau, annually, no later than the first business day of March. This form reports, among other things, an employee’s gross and net wages from the employer during the previous calendar year, the amount of federal, state, and local income tax withheld by the employer, and the amounts contributed by the employee to a 457 and/or 401(k) plan.
An obsolete form previously used to report distributions from annuities, pension and retirement plans, and IRAs. Such distributions (periodic and total) are now reported on Form 1099-R.
Withholding Certificate for Pension or Annuity Payments. This form must be completed by a participant prior to ICMA-RC distributing assets that do not qualify as “eligible rollover distributions” from a 457 or 401 plan. By completing this form the participant tells RC how much to withhold from the distribution for federal income taxes. This form is also used to change the amount of withholding from periodic payments. Participants may elect not to have income tax withheld from distribution (except in the case of mandatory withholding), but must do so by filing the appropriately completed form. If a participant does not submit a Form W-4P, ICMA-RC will withhold federal income taxes based on a filing status of married with three exemptions.
Provides participants with a recommendation on the specific funds offered under their employers’ plan in which to invest.
An option for some 401 plan participants who elect to receive a single, large, lump-sum distribution payment. Participants who are at least 59½, have been in the plan at least 5 years, and have never used the provision previously may choose to treat the distribution as a 5 or 10 year event for tax purposes. Repealed effective for tax years beginning on or after January 1, 2000.
fund net assets
“Fund Net Assets” is the total value of a fund’s securities, cash, and other holdings, minus any accrued expenses and liabilities across all share classes of the fund. The value shown is in millions.
A transfer of all or a portion of a participant’s assets in one or more contribution types from one or more investment options to one or more other investments. Fund transfers, unless restricted by the employer, may be completed either by phone (through VantageLine, an Investor Services representative or Account Access. (See “reallocation.”)
fund transfer rescission
Available through VantageLine, through VantageLink or through an Investor Services associate, this option allows participants to negate pending transfer requests.
fund transfer restriction
1) Limitations placed by investment contract providers on direct transfers from the PLUS fund to “competing funds,” such as the VantageTrust Cash Management Fund, Certificates of Deposit and other short-term cash or bond funds. The restrictions permit indirect transfers from the PLUS Fund into a “non-competing fund.” After 90 days in the “non-competing fund,” transfers are permitted to include competing funds.
2) Limitations placed on transfers to the three Vantagepoint “international” funds to protect long-term investors in these funds.
3)Limitations placed on transfers to other funds to protect their long-term investors.
A contribution is in “good order” if the remittance amount and contribution detail reconcile and are available at the same time. The contribution detail must also conform to certain specifications for tape, diskette, electronic data transfer (EDT) or submittal form. Contributions received “in good order” will receive same-day participant investment of funds.
A plan established or maintained for its employees by the federal or any state government, political subdivision, agency or instrumentality. The term also includes plans sponsored by railroads or international organizations exempt from tax under the International Organization Immunities Act.
A portfolio of stocks that emphasizes shares of companies expected to exhibit higher than average growth in earnings usually with little or no emphasis on dividend income.
An equity investment in a corporation that has exhibited faster-than-average growth in earnings. Growth stocks tend to represent expanding firms with new products or solid market niches. They also generally pay little or no dividends and may be more volatile than other stocks.
ICMA-RC’s suite of investment advisory services, including Asset Class Guidance, Fund Advice and Managed Accounts, designed to provide participants with the appropriate planning and investment assistance based on their own investing comfort level and how active they want to be in managing their retirement accounts.
401(k) plan withdrawals allowable due to immediate and heavy financial needs of the participant where no other resources are available. Employers must have elected this plan option in the plan adoption agreement. (See “unforeseeable emergency withdrawal” for 457 plans.)
A contract with an insurance company under which payments begin as soon as the contract is purchased.
The basis for the Internal Revenue Code’s (IRC’s) 457 maximum annual contribution calculation. Under Section 457 of the Internal Revenue Code, you may generally defer a maximum of 100 percent of your gross income after subtracting any Section 414(h) picked-up contributions (mandatory employee contributions to 401 qualified retirement plans made with pre-tax dollars), or $14,000 per year (as of January 1, 2005), indexed, whichever is less. (See “normal compensation.“)
A portfolio that may contain stocks, bonds, or other investments that emphasize an income stream from dividends or interest. The value of an income fund grows primarily or entirely due to receipt and reinvestment of income.
A portfolio that seeks to replicate the investment characteristics of a broad-based index. For instance, the Vantagepoint 500 Stock Index Fund is structured so that it performs as closely as possible to the performance of the S&P 500 Index.
(1) Linking an investment’s performance to a passively managed index or predetermined “basket” of securities. The Trust’s 500 Stock Index Fund is structured so that it performs as closely as possible to the performance of the S&P 500 Index. (2) The linking of a payment to an economic indicator. For example, a pension payment may increase by the same percentage as the Consumer Price Index.
individually designed plan document
A plan document prepared by an employer and presented to ICMA-RC to administer. A plan is also considered individually designed if the employer makes substantial changes to the standard RC plan document, for example, rewriting entire sections.
individual retirement arrangement (IRA)
A form of retirement investment administered by a bank or other custodian in the form of an individual retirement account, or by an insurance company in the form of an individual retirement annuity.
in good order
A contribution is “in good order” if the remittance amount and the contribution detail reconcile and are available at the same time. The contribution detail must also conform to certain specifications for tape, diskette, electronic data transmission (EDT) or submittal form. Contributions received “in good order” by 4:00pm Eastern Time will receive same-day participant investment of funds.
401 Profit-Sharing Plan participants at least 59 ½ years of age and fully vested may be allowed to withdraw some or all of their account while still employed, provided the employer has selected this plan option. Such withdrawals are limited to two per calendar year, may be rolled over, and are subject to 20% withholding. See “voluntary after-tax.”
Cost of using money, expressed as a percentage rate for a set period of time, usually a year, in which case it is called an annual rate of interest.
For bonds, a maturity between 3 and 10 years.
Internal Revenue Code (IRC)
The laws established by Congress that defined how the federal government may tax residents and citizens of the U.S. Of particular interest to employers are sections 401 and 457 which outline requirements for qualified retirement and deferred compensation plans.
Investments made in securities of companies (or governments, in the case of bonds) based in countries outside the U.S. Most such investments require a conversion of currency from U.S. dollars to the local currency of the country where the investment is made.
international mutual funds
Mutual funds that invest in securities markets throughout the world. Securities may be stocks or bonds. The fund’s objective determines what type of securities the fund manager purchases and whether the investments come from one region or across the globe. (See “international investments”).
Any person who, for compensation, engages in the business of advising others, either directly or through writing, as to the value of securities or the advisability of investing in, purchasing, or selling securities, or who, for compensation, issues analyses or reports concerning securities. Most investment advisers must register with the SEC and with most states. They are subject to the Investment Advisers Act of 1940 and the rules and regulations thereunder, as well as applicable state “blue sky” laws.
investment allocation change
A change in the existing allocation which affects future contributions. An investment allocation change is not the same as a fund transfer, which affects existing account balances. A plan participant can make an investment allocation change by using VantageLink (www.icmarc.org), calling VantageLine (1-800-669-7400) or contacting an Investor Services representative at 1-800-669-7400. (See also “allocation.”)
A firm that invests, for a management fee, the pooled funds of investors in securities appropriate for its stated investment objective.
Contract between an investor and a financial entity, usually an insurance company, that promises to repay the principal plus a specific rate of return on the invested assets over the life of the contract. Also referred to as guaranteed investment contracts or GICs, these conservative investments are “guaranteed” only by the credit or the issuing financial institution. Although they resemble bonds in having fixed face value and paying a predetermined rate of interest, these contracts cannot be sold and therefore their value is not market-driven.
Any fiduciary who manages, acquires, or disposes of assets. Under the Investment Advisers Act of 1940, this may be a registered investment adviser, a bank, or an insurance company licensed in more than one state to perform investment services. (See also “money manager”)
In mutual fund investing, the stated goal (e.g. income, capital appreciation, growth and income) for the investment that the portfolio manager is obligated to attempt to pursue.
The amount, expressed as a percentage, earned on an investment, as a result of both capital appreciation and income.
A plan to allocate assets among a variety of investment choices based on an investor’s needs, constraints, and market outlook.
Individual retirement arrangement. A form of retirement investment administered by a bank or other custodian in the form of an individual retirement account or by an insurance company in the form of an individual retirement annuity.
Internal Revenue Code. The laws established by Congress that defined how the federal government may tax residents and citizens of the U.S. Of particular interest to employers are sections 401 and 457.
Internal Revenue Service. A division of the Department of the Treasury that collects taxes authorized by the Internal Revenue Code, writes regulations and procedures under the code for enforcing and interpreting the code, and then enforces the code.
IRS Required Minimum Distribution
The minimum payment required to be taken from a 401 or 457 account annually in order to satisfy the Internal Revenue Code. Starting the later of April 1 of the year following the year a participant reaches age 70½ or separation from service, participants must withdraw at least the prior year’s ending balance divided by the joint life expectancy of the participant and designated beneficiary. (See also “minimum required distribution.”)
A corporation or government entity that offers its stocks or bonds to the investing public.
A contract between a buyer and an insurance company providing periodic payments to the buyer for life and, after their death, periodic payments equal to 50% of the annuitant’s payment to a designated beneficiary for the balance of the beneficiary’s life.
joint life annuity
A contract between a buyer and an insurance company providing periodic payments to the buyer for life and, after their death, to a designated beneficiary for the balance of the beneficiary’s life.
A feature of 401 profit sharing plans that allows employees to defer income on a pre-tax basis. This “k” feature can be referred to by any of the following terms: cash or deferred arrangement (CODA), elective deferral, voluntary pre-tax contribution, salary reduction contribution, or 401(k) deferral. In the public sector, newly adopted plans cannot contain a “k” feature, but employers with a “k” feature plan in effect on May 6, 1986 may continue offering it to employees.
For 401 and 457 plan participants, benefit payments must begin by April 1 of the calendar year following the year in which age 70½ is reached or the year of retirement, whichever is later. See “IRS minimum required distribution.”
An annuity that provides payments for the life of the annuitant with no beneficiary payments. Payments stop at the death of the annuitant and the money reverts to the insurer. Typically this type of annuity pays the largest monthly benefit per dollar invested. Also called a “life-only” annuity.
The borrowing of funds by a participant and repayment of the funds via payroll deduction. The loan option must be elected by an employer in the plan adoption agreement or Automated Clearing House (ACH).
On the issuance of a participant loan, a loan account is created in the amount of the outstanding loan balance at any given time. Loan repayments are transactions within the loan account.
Condition that exists when a participant does not make a required loan repayment for a period of 90 days.
loan disclosure statement
Document which states the terms and conditions of a loan, including the cost of the loan, interest rate, fees and repayment period.
A set of terms and conditions under which loans may be made to participants. RC provides a set of guidelines which are designed to meet all Internal Revenue Code requirements.
loan issuance date
The date on which the loan begins accruing interest.
loan maintenance fee
The amount deducted, if applicable to the employer’s plan, from the participant’s account balance to cover administrative costs of the loan for the preceding year.
loan origination fee
Amount deducted, if applicable to the employer’s plan, from the participant’s account balance to cover the cost of processing the loan application and issuing the loan documents and disbursement.
loan promissory note
A loan document signed by a participant stating that a portion of their account assets are invested in a loan to the participant.
loan reamortization fee
Amount deducted, if applicable to the employer’s plan, from the participant’s account balance to cover the cost of processing the loan reamortization.
loan refinancing fee
Amount deducted, if applicable to the employer’s plan, from the participant account balance to cover the cost of processing the loan refinance.
The life of the loan, which shall not exceed five years unless the loan is for the purpose of acquisition of a primary residence which may be up to 30 years.
loan truth in lending rescission notice
Loan document signed by a participant seeking a loan from their account if the participant does not agree to the terms of the loan and refuses to accept it.
In general investing, an investment held for several years. In the bond market, a bond with a maturity of 10 years or more.
long term bonds
Bonds with a maturity date at least 10 years into the future. Long-term Treasury bonds (and other types as well) are issued with a maturity date as far as 30 years into the future.
Payment of the entire balance in a participant’s account within a taxable year. The distribution is generally only considered a lump-sum distribution if it is paid as a result of the death of the participant, as a result of the participant’s separation from service, or after the participant reaches age 59½.
Provides ongoing professional discretionary management of participants’ retirement accounts, if available through your plan.
mandatory 20 percent withholding
If a distribution from a section 457 non-qualified or section 401 qualified plan is an ”eligible rollover distribution” and the participant does not make a direct rollover, 20 percent of the distribution must be withheld for federal income taxes. Participants cannot elect a lower rate of withholding, even if they intend to make a rollover within 60 days of the distribution.
Fixed contribution which is a requirement for plan participation.
The market value of an equity holding is obtained by multiplying the period end closing price of the equity holding by the number of shares held. The market value for a fixed income holding is obtained by multiplying the period end closing price by the number of fixed income holdings held. The market value of derivative instruments represents the accounting value (unrealized gain/loss) of the derivative at the end of the period. All derivative holdings are listed in the section labeled "Other Holding(s)".
The day on which the principal or face value of a bond (or other debt security) is due to be paid back to the debt holder.
minimum coverage test
The IRS requirement that a qualified plan benefit a certain percentage of employees. It consists of several rules and tests detailed in IRC Section 410(b). Governmental plans are exempt from these rules.
minimum participation test
The IRS nondiscrimination requirement that a qualified plan must cover the lesser of 50 employees or 40 percent or more of all employees of the employer. (IRC Section (401)(a)(26)) Governmental plans are exempt from compliance with these rules.
minimum required distribution
The smallest periodic benefit payment the IRS will allow a participant of a 401 or 457 plan to receive. In determining this amount, the schedule of payments, amount of assets in the account and life expectancy of the participant (and beneficiary) are considered. See also “IRS Required Minimum Distribution.”
Mutual funds that invest assets in a predetermined allocation of other stock and bond mutual funds. Their objective is to achieve an appropriate overall asset allocation to maximize return at a given level of risk. These funds may range from conservative to aggressive. Also known as “lifestyle” funds.
Investment professionals who determine how money is to be invested for mutual funds, institutions or wealthy individuals. Their investment decisions may include not only which investments to acquire, but when, how much, and when to sell. (See also “investment manager”).
money purchase plan
A defined contribution plan, other than a profit-sharing plan, that provides for an individual account for each participant and for fixed or determinable contributions by the employer. So called because the amount of the employee’s retirement benefits will be determined by the value of the cashed-out investment purchased with contributions made on the employee’s behalf during employment. Employers must contribute a fixed amount annually to these plans.
Fund operated by an investment company that pools money from shareholders and invests it in a diversified portfolio of securities. Each portfolio is invested according to a predetermined investment objective, and may be conservative to aggressive.
The current worth of a share in a particular fund, calculated by totaling the market value of all securities owned by the fund, plus cash and other assets, subtracting any liabilities and dividing the result by the number of fund shares outstanding. Share prices increase or decrease based on activity in the underlying securities of the fund. Also called “NAV”, “share price” or “share value.”
Contribution detail from an employer which does not conform to ICMA-RC’s specifications (for tape, EZLink, electronic data transfer (EDT) or submittal form), causing delays in posting contributions to participant accounts. See also “good order.”
For the private sector, one of the requirements for 401 plan qualification: plans cannot discriminate in favor of highly compensated employees in terms of availability of benefits, rights and features. The regulations under section 401(a)(4) serve as the cornerstone of this requirement and provide guidance concerning the general nondiscrimination rules for qualified plans. These regulations, together with the regulations under sections 401(a)(5), 401(a)(17), 401(a)(26), 401(k), 401(l), 401(m), 401(b), and 414(r), constitute an integrated framework for applying the nondiscrimination provisions of the Internal Revenue Code. Governmental plans are excluded from compliance with these rules.
A claim obtained by a pension plan participant or beneficiary to part of an immediate or deferred benefit that is unconditional and legally enforceable against the plan.
A plan not meeting the qualification requirements of IRC Section 401(a). For example, section 457 deferred compensation plans are nonqualified plans which are eligible for tax deferral under the Code.
For participants of 457 deferred compensation plans wishing to know their contribution maximum (25% of normal compensation), normal compensation is calculated as gross wages minus all pre-tax contributions, except for 457 deferred compensation. Pre-tax deferrals can include picked-up 401 employee contributions, 401(k) elective salary deferrals, Section 125 cafeteria plan deferrals, 403(b) tax-sheltered annuity elective deferrals, or other tax-advantaged employee deductions. See also “includable compensation.”
normal retirement age
401 Plans: The earlier of the time a participant attains retirement as defined by the terms of the qualified plan, or the later of (a) the participant’s 65th birthday or (b) the 10th anniversary of becoming a plan participant. Participants automatically become 100 percent vested if they reach normal retirement age while employed by the employer.
457 Plans: The later of (a) age 70½ or (b) the year a participant actually separates from service.
notice, explanation and waiver of qualified joint and survivor annuity
A married 401 plan participant is required to receive distributions in the form of a “qualified joint and survivor annuity” unless his/her spouse waives this form of payment by completing the Notice, Explanation and Waiver of Qualified Joint and Survivor Annuity Form. See “Qualified Joint and Survivor Annuity.”
Any employee or former employee of an employer, or any member or former member of an employee organization, who is eligible to receive a benefit of any type from an employee benefit plan or whose beneficiaries may be eligible to receive any such benefit. See also “employee.”
participant account number
An employee’s selected date for the beginning of pension payments. Payments must begin the later of (a) April 1 of the year following the year a participant reaches age 70½, or (b) separation from service.
pay stub calculation
An illustration of the amount an employee or participant may save in current income tax by contributing or increasing their contributions to a retirement plan based on their salary record.
penalty — 10% tax penalty on premature withdrawals
10% IRS penalty on most withdrawals of plan funds before a participant attains the age of 59½. ICMA-RC does not withhold taxes to satisfy penalties.
penalty — 15% excise tax on excess distributions
15% IRS penalty for lump-sum withdrawals of more than $750,000 (indexed) or annual benefit payments from all retirement accounts totaling more than $150,000 (indexed). ICMA-RC does not withhold taxes to satisfy penalties.
penalty — 50 % excise tax for failure to take required minimum distribution
IRS penalty for failure to withdraw a minimum annual amount after age 70½. Penalty is 50% of the difference between the minimum required distribution and the amount actually withdrawn. ICMA-RC does not withhold taxes to satisfy penalties. See “IRS minimum required distribution.”
A plan providing retirement income to employees or deferring the income of employees to a period extending to the termination of employment or beyond. Such a plan requires benefits or employer contributions which are fixed and determinable. The section 401 money purchase plan is a form of pension plan.
pick-up provision or pre-tax mandatory
An employer-selected option in a 401(a) plan that allows mandatory employee contributions to be made on a pre-tax basis. Funds allotted under this provision are subject to Social Security tax. To qualify for pick-up, employee contributions must be mandatory. Once a participant chooses to participate in a plan with the pick-up provision, he or she may not subsequently cease participation in the plan or change the contribution amount.
plan administration fee
The charge assessed to each account compensating the plan administrator for supervising and completing the daily operation of the plan.
A person or corporation designated by the terms of the document under which the plan is operated or, if none is so designated, the plan sponsor. ICMA-RC is the plan administrator for the ICMA-RC 457 and 401 Plan.
See “pick-up provision.”
Dwelling in which a participant resides or intends to reside. For loan purposes, the determination of whether a dwelling is or will be used as a primary residence of the participant will be made at the time the loan is requested, based on the facts and circumstances of the particular situation.
In investments, the basic amount invested, exclusive of earnings.
prior periods of service
The length of previous employment periods (in months) in which a rehired participant has provided service to the employer. This amount may include numerous rehire periods. The total amount of prior periods of service may be used to calculate current vesting percentage.
private letter ruling
A written response issued to a taxpayer by the National Office of the IRS that interprets and applies the tax laws to that taxpayer’s case. While private letter rulings may not be used as a precedent, they tend to predict IRS treatment of a similar case.
profit-sharing plan (401)
A plan established and maintained by an employer through which an employer may change the amount of the annual contribution each year. Employer contributions are not required on an annual basis, but must be substantial and recurring. Funds in a profit-sharing plan are tax-deferred until withdrawn.
Requirements set out by the Internal Revenue Code and ERISA which if met, result in special tax benefits accorded to a pension or employee benefit plan.
qualified domestic relations order
A domestic relations order under IRC Section 414(p) that creates or recognizes an alternate payee’s right to all or a portion of a participant’s qualified (401) plan benefits.
qualified joint and survivor annuity (QJSA)
An annuity for the life of a plan participant with a survivor annuity for the life of the surviving spouse which is not less than one-half of, nor greater than the amount of, the annuity payable during the joint lives of the participant and spouse. It is the actuarial equivalent of a single annuity for the life of the participant. The ICMA-RC plans provide an annuity for the life of the participant with a 50 percent annuity for the surviving spouse. Required form of payment for money purchase plans. See also “Waiver of Joint and Survivor Annuity.”
A plan that meets the formal qualification requirements of Code Section 401(a). ICMA-RC’s 401 money purchase plan and 401 profit-sharing plan are qualified plans. The 457 deferred compensation plan is not a qualified plan.
qualified preretirement survivor annuity (QPSA)
An annuity for the life of the participant and the participant’s spouse, the amount of which depends on whether the participant died before or after the earliest retirement age under the plan. If the participant dies after the earliest retirement age, the payments must be equal to the amount that a qualified joint and survivor annuity would have provided if the participant had retired the day before dying. If the participant dies on or before the earliest retirement age, the payments must equal the amount the survivor would have been paid under a qualified joint and survivor annuity if the participant had separated from service on the day of death, survived to the earliest possible retirement age, retired with an immediate qualified joint and survivor annuity on that date, and died the next day. Required for 401 money purchase plans. See also “annuity.”
A change in the existing allocation which affects future contributions. Reallocation is not the same as fund transfer, which affects existing account balances. The preferred term is investment allocation change. A plan participant may reallocate their future contributions online through VantageLink (www.icmarc.org), by phone VantageLine (800-669-7400), or by contacting an Investor Services representative (1-800-669-7400). See also “allocation.”
Process used to amend loan features other than the dollar amount of the loan.
Transferring money from one or more funds in your account to another in order to maintain consistent asset allocation and risk exposure regardless of market fluctuations.
Process wherein a participant who has one outstanding loan requests to borrow an additional amount.
The investment of income or dividend income back into the asset from which it was derived. For example, in a mutual fund, dividend income may be reinvested into more shares of the same mutual fund.
For loans to active participants, the payroll frequency of the employer. For terminated participants, the repayment frequency will be no less frequent than monthly.
restricted spousal rights
In ICMA-RC’s Profit-Sharing Plan, a participant’s spouse is the beneficiary for 100% of the account, unless waived with spousal consent. The participant is not required to obtain spousal consent for any account withdrawals, including hardships, loans, or retirement benefits.
Profit or loss on a security or capital investment, usually expressed as an annual percentage rate.
Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. A fund's investment objective and its holdings are influential factors in determining how risky a fund is. Reading the prospectus will help you to understand the risk associated with a particular fund.
Generally speaking, risk and potential return are related. This is the risk/return trade-off. Higher risks are usually taken with the expectation of higher returns at the cost of increased volatility. While a fund with higher risk has the potential for higher return, it also has the greater potential for losses or negative returns.
An investor’s willingness to take the chance that an investment will devalue or will fluctuate in value. The amount of risk an investor is willing to assume is a determining factor in designing an investment portfolio.
A participant transfers all or part of their assets from one tax-deferred program to another. If tax-deferred funds are not rolled over into a new tax-deferred account, the participant must pay taxes and, in some cases, a penalty. See also “direct rollover.”
A participant who receives a direct distribution has 60 days to transfer the distributed funds into another qualified plan or an IRA. If this is not done, the participant’s withdrawal will be subject to ordinary income taxes and, in some cases, penalties.
Section 415 defines annual qualified plan contribution limits for both employer and employee contributions. Effective Jan. 1, 2002, Section 415 sets this limit at $40,000 or 100% of 415 wages.
An instrument signifying ownership in a corporation (stock), or a creditor relationship with a corporation or government (bond) or right to ownership.
The portion of a fund held by a person which measures the percentage ownership held by that individual. The number of shares owned will increase/decrease based on contributions, fund transfers into/out of the fund and fund redemptions. See also “share value.”
Essential to daily cash processing and settlement, share accounting is an efficient way to track business by centrally storing share prices, changing numbers of shares only with transactions and calculating balances when needed. Share accounting is used across the securities industry.
The current worth of a share in a particular fund, calculated by totaling the market value of all securities owned by the fund, plus cash and other assets, subtracting any liabilities and dividing the result by the number of fund shares outstanding. Share prices increase or decrease based on activity in the underlying securities of the fund. Also called “NAV,” “net asset value” or “share value.”
The current worth of a share in a particular fund, calculated by totaling the market value of all securities owned by the fund, plus cash and other assets, subtracting any liabilities and dividing the result by the number of fund shares outstanding. Share prices increase or decrease based on activity in the underlying securities of the fund. Also called “net asset value,” “NAV” or &“share price.”
Investment with a maturity of one year or less.
Interest calculated only on the original principal amount. Simple interest contrasts with compound interest, which is applied to principal plus accumulated interest.
single life annuity
A single life annuity provides you with regular payments for as long as you live. No amounts are payable to your beneficiary upon your death.
small balance withdrawal (457)
457 accounts of less than $1,000 will be distributed to the participant at ICMA-RC’s discretion if certain conditions have been met (can be prior to separation from service). 457 accounts of $1,000 to $5,000 may be distributed to the participant at the request of the participant or employer if certain conditions have been met (can be prior to separation from service). (See “small balance withdrawals” and “de minimus.”)
The required consent by a spouse before a participant may elect to waive a qualified joint and survivor annuity (QJSA) or a qualified preretirement survivor annuity (QPSA) or take a loan from a qualified plan.
stable value funds
Fixed rate funds invest in negotiated stable value contracts issued directly from financial institutions like insurance companies. The funds provide only interest on principal. Stable value contracts may not be sold in the marketplace; therefore stable value funds do not report a market value and do not fluctuate in price.
“Standard deviation” is a statistical measurement of dispersion about an average. In other words, it depicts how widely a fund’s returns varied over a certain period of time. Investors may use the standard deviation of historical performance to try to predict the range of returns that are most likely for a given fund. When a fund has a high standard deviation, the predicted range of performance is wide, implying greater volatility.
Standard deviation is most appropriate for measuring the risk a fund that is an investor’s only holding. Standard deviations of more than one fund cannot be combined because the standard deviation for a portfolio of multiple funds is a function of not only the individual standard deviations, but also of the degree of correlation among the funds’ returns.
Standard & Poor’s
An investment services company providing bond ratings, the Standard & Poor’s 500 Stock Index, and a wide variety of other investment guides and services. It is a subsidiary of McGraw-Hill, Inc.
Standard & Poor’s 500 Index
A measure of stock price changes based on the performance of 500 selected common stocks. The average takes into account not only the price of the stocks but also the number of outstanding shares. Abbreviated S&P 500, it is a broader market indicator than the Dow, which consists of only 30 stocks.
Stocks represent an ownership interest in the issuing company; the greater the number of shares held, the larger the proportionate ownership. Owners of common stock are entitled to dividends, if any, paid by the company.
An investment vehicle with assets primarily in equities. See “equity.”
A term used by RC to describe the registered investment advisers who do the actual security selection of and investing for the total return funds of the ICMA Retirement Trust.
This type of annuity provides you or your joint annuitant with regular payments for as long as you or your joint annuitant live. If you and your joint annuitant should die before the specified period of time (term certain), payments will continue to your beneficiary for the balance of the period. For example, a 10-year term certain/joint life annuity will provide your named beneficiary with regular payments for the remaining 4 years of the 10-year term certain if you and your joint annuitant should die after receiving regular payments for only 6 years.
term certain/single life annuity
This type of annuity provides you with regular payments for as long as you live. If you should die before the specified period of time (term certain), payments will continue to your beneficiary for the balance of the period. For example, a 10-year term certain/single life annuity will provide your named beneficiary with regular payments for the remaining 8 years of the 10-year term certain if you die after receiving regular payments for only 2 years.
RC offers a number of toll-free telephone Investor Services numbers. Participants performing transactions or requiring assistance in English or Spanish can call Investor Services at 800-669-7400 or TDD at 800-669-7471. Employers can call the Employer Services Unit at 800-326-7272.
Total Expenses Estimated
These expenses include the fees incurred by the underlying mutual fund such as investment management fees, and transfer agency and custodial fees as well as any plan administration fees and service fees. Actual expenses may be different from those shown.
A fund’s total return includes change in value of assets due to capital appreciation and loss and income from dividends or interest.
total return funds
Comprised of portfolios of publicly traded securities that can be expected to vary in value over time, as income (dividends or interest) and capital gains and losses (appreciation or depreciation) occur.
Negotiable debt obligations of the U.S. government, secured by its full faith and credit, issued at various schedules and maturities.
Short-term securities with maturities of one year or less.
Intermediate term securities with maturities of one to 10 years.
Long-term debt obligation issued with maturities of 10 years or longer.
The employer is normally the plan trustee for the 401 and 457 plans.
The transfer of funds in a qualified plan or an IRA directly from one plan’s trustee to another. See “direct rollover.”
A strictly defined Internal Revenue Code provision allowing 457 plan participants to withdraw some or all their account assets to cover the cost of the emergency and any tax liabilities incurred by the withdrawal. The emergency must meet criteria determining that it was unforeseeable and has created severe financial hardship. (See “emergency withdrawal.”)
Our free 24-hour automated phone service available to all ICMA-RC participants to check current account balances, obtain current statements, execute fund transfers and investment allocation changes, obtain Internet (Account Access) passwords, or obtain literature. The toll-free number is 800-669-7400.
The extent to which a participant has a right to contributions and benefits derived from plan contributions made by the employer.
The rate at which employer contributions (made on behalf of participants) become an asset of the participant. This schedule is designated by the employer in the adoption agreement.
A contribution source which, if selected by employers in their 401 Adoption Agreements, allows participants to have up to 25 percent of their earnings contributed to the plan on an after-tax basis.
Form on which married 401(a) plan participants and their spouses acknowledge they are not selecting the federally required qualified joint and survivor annuity payment option. This form must be completed to select any other distribution option. (See also “qualified joint and survivor annuity.”)
Generally, the return of an investor’s capital investment. For bonds, the coupon rate of interest divided by the purchase price, is called the current yield. Also, the percentage of the current stock price that is paid in the form of dividends. See also “earnings.”