Pension Terms M - P
| A - D | E - H | I - L | M - P | Q - T | U - Z |
Managed Account Service: A service that automatically allocates assets in a participant's individual account among the available investment alternatives based on certain factors (e.g., participant's age, target retirement date, life expectancy, risk tolerance). Typically, a managed account service will take into account other financial data relevant to the participant (e.g., assets held outside the plan), if input by the participant.
Manager Risk: The possibility that a fund's portfolio manager may fail to execute a fund's investment strategy or style effectively and consistently so that the fund fails to achieve its statement objective.
Mandatory Aggregation: Plans, or portions of plans, that must be tested together when applying the average benefit percentage test.
Mandatory Disaggregation: Portions of plans that must be tested separately under the minimum coverage rules. Mandatory disaggregation is required for collectively bargained plans, multiple employer plans, plans of different contribution types, and ESOPs.
Mandatory Employee Contributions: Contributions made by an employee in order to become eligible to participate under a plan.
Market Risk: The possibility that stock or bond prices over broad segments of the market will fluctuate. (Compare to Credit Risk.)
Master Plan: A retirement plan that is sponsored by a financial institution such as an insurance company, bank, mutual fund, or stock brokerage firm, and that may be adopted by an employer merely by executing a participation agreement.
Matching Contribution: Any (1) employer contribution (including a contribution made at the employer's discretion) to a defined contribution plan on account of an employee contribution to a plan maintained by the employer; (2) employer contribution (including a contribution made at the employer's discretion) to a defined contribution plan on account of an elective deferral; and (3) forfeiture allocated on the basis of employee contributions, matching contributions, or elective deferrals. It is sometime referred to as a "qualified matching contribution" or "QMAC".
Minimum Aggregate Allocation: The gateway minimum requirement for combination defined benefit/defined contribution plans.
Minimum Coverage Requirement: A retirement plan must satisfy one of two coverage tests in order to qualify for favorable tax treatment: (1) the ratio percentage test or (2) the average benefit test.
Minimum Funding Standards: To ensure that sufficient money will be available to pay promised retirement benefits, minimum funding standards have been established for defined benefit plans, money purchase pension plans, and target benefit plans. A plan will be treated as satisfying the minimum funding standard for a plan year if: (1) in the case of a defined benefit plan that is not a multiemployer plan, the employer makes contributions to the plan not less than the minimum required contribution for the plan year; (2) in the case of a money purchase pension plan that is not a multiemployer plan, the employer makes contributions to the plan for the plan year required under the terms of the plan; and (3) in the case of a multiemployer plan, the employers make contributions to the plan sufficient to ensure that the plan does not have an accumulated funding deficiency as of the end of the plan year.
Minimum Required Contribution: With respect to any plan year of a defined benefit plan that is not a multiemployer plan: (1) in any case in which the value of assets of the plan is less than the funding target of the plan, the sum of: (a) the target normal cost for the plan year, (b) the shortfall amortization charge if any for the plan year, and (c) the waiver amortization charge if any for the plan year, and (2) in any case in which the value of assets of the plan equals or exceeds the funding target of the plan, the target normal cost of the plan for the plan year reduced by such excess.
Minimum Participation Requirement: In addition to the minimum coverage requirement, a minimum participation requirement must be met by defined benefit plans in order to be qualified.
Money Market Fund: A mutual fund that invests in highly liquid short-term securities, including bank certificates of deposit (CDs), commercial paper, and Treasury Bills (T-Bills). (See Cash Investments.)
Money Purchase Pension Plan: A defined contribution plan under which the employer's contributions are mandatory and are usually based on each participant's compensation. Retirement benefits under the plan are based on the amount in the participant's individual account at retirement.
Most Valuable Accrual Rate (MVAR): The accrual rate calculated to take into account subsidies for early retirement and optional payment forms including lump sums based on the Section 417(e) rates.
Multiemployer Plan: A pension plan, maintained under a collective bargaining agreement, that covers the employees of more than one employer. Generally, the various employers are not financially related but rather are engaged in the same industry.
Multiple Employer Plan: A plan maintained by two or more employers that are not members of the same controlled group or affiliated service group and that benefits only noncollective bargaining employees. It is subdivided into as many plans as there are employers maintaining the plan.
Multiple Use Limitation: A test that was required to be performed in a 401(k) plan in which both the actual deferral percentage (ADP) test and the actual contribution percentage (ACP) test were satisfied using the more liberal alternative limitation test until it was eliminated by EGTRRA.
Mutual Fund: An investment company that combines the money of its numerous shareholders to invest in a variety of securities in an effort to achieve a specific objective over time.
Named Fiduciary: A fiduciary who is named in the plan instrument or identified through a procedure set forth in the plan. One of the distinguishing features of the named fiduciary is that he or she has the authority to designate others to carry out fiduciary responsibilities (e.g., invest the plan funds).
Negative Election 401(k) Plan: An employee is deemed to have elected to have the employer contribute a percentage of the employee's compensation to the plan under a cash-or-deferred election unless the employee specifically elects in writing not to defer compensation. In other words, the employee does not make an affirmative election to contribute. See 401(k) Plan.
Net Unrealized Appreciation (NUA): Special rules apply to appreciated stock and other securities of the employer that are included in a lump-sum distribution. These rules apply to employer securities distributed from an ESOP or from any other type of qualified retirement plan. The gain on the securities while they were held by the qualified retirement plan (the net unrealized appreciation) is not subject to tax until the securities are sold by the recipient, at which time the gain is eligible for capital gains treatment.
New Comparability: Any method of allocating nonelective contributions in a defined contribution plan that demonstrates compliance with the general test under the Section 401(a)(4) regulations on the basis of actuarially equivalent benefits.
No-Load Fund: A mutual fund that sells its shares at net asset value without charging a sales commission or load, though low levels of 12b-1 marketing costs may be assessed.
Noncontributory Plan: A pension plan under which employees are eligible to participate and receive accrued benefits without contributing to the plan.
Nondiscrimination Requirements: A retirement plan is a qualified plan only if the contributions or the benefits provided under the plan do not discriminate in favor of HCEs. A plan will satisfy this nondiscrimination rule only if it complies both in form and in operation with the requirements promulgated by IRS.
Nondiscriminatory Classification Test (NCT): A component test of the average benefits test under Code Section 410(b). The nondiscriminatory classification test requires a plan to benefit a class of employees that is both reasonable and non-discriminatory. (See Average Benefit Percentage Test (ABP Test).)
Nonelective Contribution: A contribution to a cash-or-deferred arrangement other than an elective deferral. (An elective deferral is a participant-elected contribution that the participant could have chosen to receive instead as cash.) It is sometimes referred as a "qualified nonelective contribution" or "QNEC". If the amount of the nonelective contribution depends on the amount of a participant's elective deferral, it is an "employer matching contribution."
Nonexcludable Employees: Employees for whom there is no statutory basis for excluding for coverage purposes. Nonexcludable employees become a coverage test's testing universe.
Nonforfeitable Benefits: Benefits that cannot be lost by a participant even if he or she terminates service with the employer before qualifying for full retirement benefits. The nonforfeitable benefits are determined by applying the years of credited service to the vesting schedule used by the plan. See also Vested Benefits.
Non-Highly Compensated Employee (NHCE): An employee who is not a highly compensated employee.
NHCE Concentration Percentage: The percentage of the employer's nonexcludable work force that are considered non-highly compensated employees. This percentage is used to determine the applicable safe and non-safe harbor percentages used as part of the average benefits test and for general testing.
Non-Key Employee: An employee who is not a key employee.
Nonstandardized Safe Harbor Plan: A prototype plan that would be a standardized plan except that the plan may exclude certain classifications of nonexcludable employees and may include certain provisions, such as a "last day" provision or an hours requirement for contribution eligibility as well as certain exclusions of compensation. Nonstandardized adoption agreements offer more flexibility but do not provide assurance that the form of the plan satisfies coverage and nondiscrimination requirements.
Nonqualified Deferred Compensation Plan: A retirement plan to which the qualification requirements under the Internal Revenue Code do not apply. Depending on how they are designed and operated, these plans have varying tax advantages and may be subject to minimal requirements under ERISA.
Normal Accrual Rate (NAR): The increase in the employee's accrued benefit during the measurement period (current plan year, current plan year and all prior years, or current plan year and all prior and future years), divided by the employee's testing service (the employee's years of service as defined in the plan for purposes of applying the benefit formula under the plan) during the measurement period, and expressed either as a dollar amount or as a percentage of the employee's average annual compensation.
Normal Retirement Age: The earlier of (1) the time specified in the plan as the normal retirement age or (2) the later of the time a participant attains age 65 or the fifth anniversary of the participant's date of initial plan participation. A qualified retirement plan must provide that an employee's right to benefits is nonforfeitable once the employee reaches the plan's normal retirement age.
Normalization: The process of converting an allocation or accrual into a single life annuity payable at normal retirement age. For this purpose, prescribed interest and mortality rates must be used.
NOAI: notice of annuity information
Notice of Intent to Terminate (NOIT): The 60-day advance notice to affected parties advising them of a proposed standard termination of a defined benefit plan covered by PBGC.
Notice of Plan Benefits (NOPB): The notice to participants and beneficiaries to advise them of their benefits under a terminated defined benefit plan covered by PBGC.
OBRA '87: The Omnibus Budget Reconciliation Act of 1987.
Officer: An administrative executive of a corporate employer who is in regular and continued service. One employed for a special and single transaction or one who has only nominal administrative duties is excluded.
Old Age, Survivors, and Disability Insurance (OASDI): Payroll tax imposed on employers that is equal to a set percentage of the wages paid to employees. The OASDI tax rate is used for purposes of providing for permitted disparity in a defined contribution plan and a simplified employee pension (SEP). Social Security payroll taxes also include Medicare taxes. See also Permitted Disparity.
1 Percent Owner: Any person who owns, directly or indirectly, more than 1 percent of the stock of the employer. If the employer is not a corporation, the ownership test is applied to the person's capital or profits interest in the employer. A 1 percent owner is a key employee only if his or her annual compensation from the employer is more than $150,000. See also Key Employee and Top-Heavy Plan.
One-Year Break in Service: A calendar year, a plan year, or any other consecutive 12-month period designated in the plan during which an employee does not complete more than 500 hours of service. An employee's one-year break in service has significance in terms of eligibility and vesting of benefits.
Opinion Letter: A letter issued by the IRS indicating its approval of a prototype or master plan.
Optional Forms of Benefit: Distribution alternatives available for the payment of an employee's accrued benefit.
Other Right or Feature: A feature of a plan that is more than an administrative detail and that might reasonably be expected to be of meaningful value to participants (e.g., right to direct investments).
Otherwise Excludable Employee: A plan participant who has not yet satisfied the statutory age and service requirements (generally one year of service and age 21) but who has met the plan's eligibility requirements. Special rules apply to the testing of otherwise excludable employees.
Owner-Employee: A sole proprietor or a partner who owns more than 10 percent of either the capital interest or the profits interest in a partnership.
Paperless Administration: A system in which information is prepared, stored, and communicated in electronic form instead of in paper form.
Parent-Subsidiary: A controlled group relationship that exists if one entity owns at least 80 percent of the total combined voting power of all classes of stock (or capital interest) of another entity. If a parent-subsidiary group collectively owns at least 80 percent of the combined voting power or capital interest of a third entity, the entities will be considered to be under common control.
Partial Termination: Reducing benefits or making participation requirements less liberal, although not amounting to a complete termination of the plan, may be considered a partial termination, resulting in the vesting of accrued benefits for at least part of the plan. The typical types of partial terminations include: the employer closing a plant and thereby substantially reducing the percentage of employees participating under the plan, the reduction of benefits for participating employees, the substantial reduction of contributions to the plan, and the exclusion of a group of employees from participation after they were included in the plan.
Participant: An employee or former employee who has an accrued benefit under the plan.
Participant Directed Plan: A plan under which participants determine the investment of their account balance.
Participant Loan: A loan from the plan to a participant.
Party in Interest: A party which, because of his or her or its relationship with the plan (e.g., as a fiduciary, provider of services, or the plan sponsor), is prohibited from entering into certain transactions with the plan. See also Prohibited Transactions.
Pension Annuitants Protection Act (PPA '94): Enacted on October 22, 1994. This act permits a participant, beneficiary, or fiduciary to bring an action if the purchase of an insurance or annuity contract in connection with the termination of a person's status as a plan participant would violate fiduciary standards.
Pension Benefit Guaranty Corporation (PBGC): A nonprofit corporation, functioning under the jurisdiction of the Department of Labor, that is responsible for insuring pension benefits.
Pension Funding Equity Act of 2004 (PFEA): Enacted on April 10, 2004. This Act makes significant changes to the way in which a defined benefit plan computes its funding obligations. Specifically, the Act replaces use of the 30-year Treasury bond interest rate used in determining required plan funding contributions. In its place, defined benefit plans may now use a rate based on long-term investment grade corporate bonds, as specified by IRS.
Pension Plan: A retirement plan that provides retirement income to employees.
Pension Protection Act of 2006 (PPA): Signed into law on August 17, 2006. The most comprehensive pension legislation since ERISA. Among its many provisions, the changes contained in EGTRRA 2001 have been made permanent. Other changes affect minimum funding rules, reporting and disclosure, PBGC, investment of plan assets, prohibited transactions, fiduciary rules, plan contributions and benefits, plan distributions, rollovers, plan qualification, plan administration, and IRAs and Roth IRAs.
Pension Simplification Act of 1996: Contained in the Small Business Job Protection Act of 1996.
Performance Cost: Plan costs that may or may not occur in the course of plan administration. For example, costs related to legal compliance problems and substandard investment performance.
Period of Service: A term unique to elapsed time plans. An employee's period of service begins on his or her date of hire or employment commencement date and ends on the severance from service date.
Permissible Withdrawal: A deferral that is made pursuant to an eligible automatic contribution arrangement (EACA) and that is withdrawn by the participant within 90 days of the first deferral.
Permissive Aggregation: Two or more plans that are aggregated for purposes of coverage, nondiscrimination, or top-heavy testing purposes.
Permitted Disparity: The use of Social Security to determine contributions in a defined contribution plan and benefits in a defined benefit plan. Prior to TRA '86, this was referred to as integration.
Phased Retirement Program: A written, employer-adopted program pursuant to which employees may reduce the number of hours they customarily work beginning on or after a retirement date specified under the program and receive phased retirement benefits.
Plan Administration: The tasks required to be performed in order to operate the plan in accordance with its terms.
Plan Administrator: The person or persons responsible for administering a qualified retirement plan. Generally, the plan administrator is a person specifically designated by the qualified retirement plan as the administrator. If no person or group is designated, the employer is the administrator; and, if a plan administrator cannot be determined, the plan administrator is the person or persons actually responsible for control, disposition, or management of the property received by the qualified retirement plan.
Plan Sponsor: An employer who maintains a qualified retirement plan.
Plan Year: Any 12-consecutive-month period that has been chosen by the plan for keeping its records. The 12-month period may be the calendar year, a fiscal year, or a policy year (if insurance is used to fund all plan benefits). The plan year does not have to coincide with the employer's taxable year or begin on the first day of the month. Change of a plan year usually requires the consent of IRS.
Political Risk: The potential for price fluctuations in securities sold in foreign countries due to political or financial events in those countries.
Pooled Accounting: A system of accounting that provides for the allocation of earnings and losses to a participant's accounts on an annual or more frequent basis.
Pooled Fund: A fund that is managed by a registered investment company, bank, or insurance company and that is offered as an investment choice in a participant-directed plan
PN: plan number
Predecessor Employer: An employer entity as it existed prior to its current structure. This current structure could be the result of a merger, an acquisition, or another similar transaction.
Present Value: The current value of an individual's normal retirement benefit based on actuarial assumptions set forth in the plan document.
Primary Insurance Amount (PIA): The old-age portion of insurance benefits provided under the Social Security Act to each employee at a single age that is not earlier than age 62 and not later than age 65.
Prior-year Testing: A method of performing ADP and ACP testing wherein the ADP of the NHCEs is based on the prior plan year. Prior-year testing is the default testing methodology
Private Letter Ruling (Priv Ltr Rul)(PLR): A private ruling issued by IRS in response to a request from a taxpayer as to the tax consequences of a proposed or completed transaction. Private letter rulings are published informally by several publishers. They are not considered as precedents for use by taxpayers other than the one that requested the ruling, but they do give an indication of IRS's current attitude as to a particular type of transaction.
Profit Sharing Plan: A defined contribution plan under which the employer agrees to make discretionary contributions (usually out of profits). A participant's retirement benefits are based on the amount in his or her individual account at retirement.
Prohibited Transactions: Specified transactions that may not be entered into (directly or indirectly) by a party in interest with the plan. Those include, for example, sales or exchanges, leases, and loans between the parties. The Department of Labor may exempt a specific transaction or grant a class exemption from the prohibited transactions restriction. See also Party in Interest.
Prohibited Transaction Exemptions: Statutory or administrative exemptions that permit transactions between plans and parties-in-interest to occur that would otherwise be prohibited.
Protected Benefit Rights and Features: Optional forms of benefits and other features of a plan that cannot be eliminated with respect to benefits already accrued under the plan.
Prototype Plans: See Master Plan.
Prudent-Person Rule: The standard under which a fiduciary must act. The fiduciary is required to act "with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims."
PS-58 Cost: The taxable value of the pure life insurance protection in a plan that provides for insured death benefits.
