Diversification
Spreading assets over many
Dividend
A distribution of earnings by a company to its shareholders. Typically, dividends are automatically reinvested to purchase additional shares. There are several important distribution-related dates to be aware of when buying and selling mutual fund shares:
- Declaration Date - The date on which the distribution is declared.
- Ex-dividend Date - The date the shares trade without the dividend.
- Record Date - Shareholders who own shares on this date will receive the distribution on the payment date.
- Payment Date - The date on which the dividend is actually paid out.
Dollar Cost Averaging
The practice of investing equal amounts of money at regular intervals, regardless of whether the market is moving up or down.
Effective Date
The date the plan was established.
Eligibility
Requirements for participation in the plan. Requirements may include a period of service and/or a minimum age. Example: Completion of one year of service and attainment of age 21.
Eligible Employee
Any employee who is eligible to participate in and receive benefits from a plan.
Employer
The employer that adopts the plan and any related employers designated in the plan document.
Employer Contribution
Money that the employer contributes to the plan.
Employer Match Contribution
Money that the employer contributes to the plan based on the employee’s 401(k) deferral.
Employee Retirement Income Security Act (ERISA)
ERISA was enacted in 1974. It integrated the Internal Revenue Code and labor laws to protect the rights of plan participants and beneficiaries. ERISA set tax qualification and fiduciary standards. It also defined procedures to enforce compliance.
Employee Retirement Income
Security Act of 1974, legislation designed to protect the rights of the
plan participants and beneficiaries.
Expense Ratio
The cost of investing and administering assets, including management fees, in a mutual fund or other collective fund expressed as a percentage of total assets.
Equity
Equity is another word for stock or ownership.
Fiduciary Responsibility
Plan fiduciaries include anyone who exercises authority with regard to the management of plan assets. These fiduciaries must act prudently and solely in the interest of participants and beneficiaries.
Front-End Load
Sales charges incurred when an investment in a mutual fund is made.
Fund
A plan investment option.
The person(s) whose job is
to "manage" the investment by buying and selling securities with the
goal of having the investment meet the growth and other objectives
stated in the prospectus within the constraints (conservative growth,
moderate growth, etc.) also stated in the prospectus; investors are
credited with profits/losses from these transactions in proportion to
the number of shares they own.
Hour of Service
Each hour for which the employer pays an employee, or for which the employee is entitled to payment, for the performance of employment duties.
Index
A marketplace average which establishes a measurement of value or worth.
Individually Managed Account
An investment account managed for a single plan.
Inflation
The rise in the level of prices.
Installation Fee
One-time fee for initiating a new plan or initiating new services.
Integrated Profit Sharing Plan
A defined contribution plan with a contribution formula that provides an additional allocation for compensation in excess of a certain level. The integrated allocation formula and excess compensation level must be defined in the plan document.
Interest
Interest is the payment you receive for the use of your money.
International Stocks
International Stocks are offered by companies whose business is not based in the U.S.
Investment Election
An election with regard to the investment of a participant’s account. The election is made in percentages and must total 100%.
Investment Time Horizon
The number of years until you retire
Short-term investment time horizon is generally five years or less.
Long-term investment time horizon is generally 15 or more years.
Investment Transfer Expense
Fee associated with a participant changing his or her investment allocation, or making transfers among funding accounts under the plan.
Large Cap Stocks
Stocks of large public companies like IBM, McDonald’s and Exxon. Sometimes these are also referred to as “Blue Chips.”
Loan
Money withdrawn from the plan to be repaid over a specified time at a specified rate of interest.
Loan Maintenance and Repayment Tracking Fee
Fee charged to monitor outstanding loans and repayment schedule.
Loan Origination Fee
Fee charged when a plan loan is originally taken.
Loan Processing Fee
Fee charged to process a plan loan application.
Management Fee
Fee charged for the management of pooled investments such as collective investment funds, insurance/ annuity products, mutual funds and individually managed accounts.
Market Capitalization
The dollar value of a public company based on the total number of shares of stock available multiplied by the price per share.
Mortality Risk and Administrative Expense (M&E Fee)
Fee charged by an insurance company to cover the cost of the insurance features of an annuity contract, including the guarantee of a lifetime income payment, interest and expense guarantees, and any death benefit provided during the accumulation period.
Mutual Funds
Investment funds in which a large number of investors combine their money to purchase securities. These securities make up a shared investment portfolio based on an investment strategy that is common to all fund investors.
Net Asset Value (NAV)
The closing price of a mutual fund as of a specified date.
Nondiscrimination Testing Expense
Tax qualified retirement plans must be administered in compliance with several regulations requiring numerical measurements. The fee charged for the process of determining whether the plan is in compliance is collectively called nondiscrimination testing expense.
Participant
Person who has an account in the plan.
Participant Education Materials/Distribution Expenses
All costs (including travel expenses) associated with providing print, video, software and / or live instruction to educate employees about how the plan works, the plan investment funds, and asset allocation strategies. There may be a one-time cost associated with implementing a new plan, as well as ongoing costs for an existing program.
Plan Administrator
The employer is usually designated as the plan administrator, unless another person or committee is appointed. The plan administrator may hire consultants, actuaries, attorneys and/or accountants to assist in day-to-day administrative functions, but the plan administrator has ultimate responsibility for eligibility, vesting, benefit calculation, distributions, recordkeeping and required reports.
Plan Document
The legal document governing operation of the plan.
Plan Document/Determination Letter Fee (Filing Fee)
Fee charged for a written plan document. Fee can also include the costs associated with preparing and filing IRS required documentation, including the request for a determination letter (document issued by the IRS stating whether the plan meets the qualifications for tax-advantaged treatment).
Plan Entry Date
The date an employee enters the plan after meeting the eligibility requirements.
Plan Fact Sheet
General information pertaining to the plan. Refer to the plan document for specific information.
Plan Loan
The law allows participants to borrow from their accounts up to prescribed limits. This is an optional plan feature.
The person (typically the
employer) who is responsible for adopting the plan and sponsoring it for
the benefit of the employees.
Plan Year
The fiscal year of the plan, which is a twelve consecutive month period.
Price
Current net asset value (NAV) of an investment option.
Principal
Principal is the amount of money you have invested, as opposed to earnings, gains or losses on your principal.
Product Termination Fee
Investment-product charges associated with terminating one or all of a service provider’s investment products.
Profit Sharing Plan
A plan which allocates employer contributions to all eligible participants under a predetermined formula as set forth in the plan document.
QDRO (Qualified Domestic Relations Order)
A judgment, decree or order that creates or recognizes an alternate payee’s (such as former spouse, child, etc.) right to receive all or a portion of a participant’s retirement plan benefits.
Redemption Fees
Redemption fees are withheld from a shareholder’s account only if the shares of the same fund beneficially owned by a shareholder are both purchased and redeemed by or on behalf of that shareholder within the redemption period as specified by the fund’s prospectus. These fees are imposed to reduce costs at the mutual fund company and to discourage frequent trading and market timing in the fund
Registered Investment Advisor
Registered with the SEC and assists employers in the selection and communication of plan investments.
Return
Your principal earns a return, which consists of interest or dividends, and gains and losses in the value of your principal.
Risk
The chance that your investment principal won’t grow as much as expected or that it could decline in value.
Risk Tolerance
Your ability to accept risk.
S&P 500
Standard and Poor’s index of U.S. common stocks tracks some of the largest companies listed on the New York Stock Exchange. These companies operate in the industrial, transportation, utility and financial sectors of the economy.
Security
A general term for stocks, bonds and money market instruments.
Separate Account
An asset account established by a life insurance company, separate from other funds of the life insurance company, offering investment funding options for pension plans.
Separation of Service
An employee no longer has an employment relationship with the employer maintaining the plan.
Service Provider Termination Charge
Plan administrative costs associated with terminating a relationship with a service provider, with the permanent termination of a plan, or with the termination of specific plan services. These may be termed “surrender” or “transfer” charges.
Shares
The number of shares owned in a security.
Signature Ready Form 5500
Fee to prepare Form 5500, a form which all qualified retirement plans (excluding SEPs and SIMPLE IRAs) must file annually with the IRS.
Small-Cap Stocks
Stocks of smaller, publicly traded companies. “Cap” refers to the company’s market capitalization.
Source
Where revenues, products and services, or financing comes from.
Start-up/Enrollment Expense
Costs associated with providing materials to educate employees about the plan, and enrolling employees in the plan. This may be part of, or included in, the education programs. There may be a one-time cost associated with implementing a new plan, as ell as ongoing enrollment costs.
Sponsor
Employer entity that sponsors the plan.
Statement
A document displaying a participant’s account.
The SPD is an overview of
the rules and benefits of a 401k plan. The Department of Labor requires
the plan administrator provide a copy of the SPD to each employee
participating in the plan.
Tax-Deferral
The ability to postpone paying current income taxes.
Tax-Deferred Compounding
Contributions and earnings accumulate tax free within a tax-deferred account. Taxes are paid as funds are withdrawn from the account, but not before use.
Termination Date
The date on which separation of service occurs.
Trustee Services
Fees charged by the individual, bank or trust company with fiduciary responsibility for holding plan assets.
Value
The number of shares owned multiplied by the current price.
The portion of a
participant's 401(k) account balance that they are entitled to under the
plan's rules. Depending on the provisions of the plan, employees become
"vested" over a pre-determined period of time, incrementally over a
period of years.
Vesting Schedule
A table showing the percent of ownership for each year of service.
Volatility
Volatility is the tendency of an investment to experience price swings (ups and downs) in a short period of time.
VRU
Voice Response Unit.
Wrap Fee
An inclusive fee generally based on the percentage of assets in an investment program, which typically provides asset allocation, execution of transactions and other administrative services.
Year of Service
A computation period during which an employee completes a designated number of hours. Years of service are used for eligibility and vesting purposes.
