Get familiar with the retirement saving plan terms you will likely encounter when selecting a plan and use this glossary to help you sort through your various options.
Actual Deferral Percentage Test (ADP test): Used for 401(k) testing. The basic rule for ADP is highly compensated employees may be no more than two percent higher than non-highly compensated employees.
annuity: 1. a retirement benefit 2. a defined benefit pension plan.
average benefits test: Section 129(d)(8)(A) of the Internal Revenue Code requires that the average dependent care benefits provided to all non-highly compensated employees (NHCE) employees must be at least 55% of the average dependent care benefits provided to all highly compensated employees.
Average Contribution Percentage Test (ACP test): Used for 401(k) testing. The basic rule for ACP is highly compensated employees can be no more than two percent higher than non-highly compensated employees.
carryover: The rollover of unused benefit time into the new benefit year.
Cash or Deferred Arrangement (CODA): Any qualified retirement plan in which employees can choose either to 1. have the employer make contributions to a plan on their behalf by deferring part of their current earnings or foregoing a future rate increase or 2. receive the employer's contribution in cash.
catch-up contributions: Starting in 2002, eligible participants who are 50 years of age or older have been allowed to make additional, pre-tax contributions or "catch-up contributions" that exceed the retirement saving plan limits up to the catch-up contribution limits permitted under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA): The EGTRRA altered the laws governing employer-sponsored retirement plans, including standard 401(k), 401(k) SIMPLE, and SIMPLE-IRA plans.
Individual Retirement Account (IRA):A tax-deferred personal retirement-savings account that meets the requirements of Internal Revenue Code Section 408 1. Special interest-bearing accounts established to provide for future retirement. 2. Individual annuity contracts issued by an insurance company.
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trust: Care and management of property or funds by a person or bank for the benefit of another person.trustee: The person appointed by the bankruptcy courts to administer the assets in a bankruptcy case. This is not the same person as the debtor’s lawyer.
top heavy test: A type of 401(k) discrimination test. Highly compensated employees’ account balances may not make up more than 60 percent of the total account balances for all participants in a given plan. (The best way for doctors to avoid being "top heavy" is to choose a "Safe Harbor" 401(k) which is the only type of 401(k) that does not require this test). Your payroll processing services provider can give you more information on 401(k) choices.
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