Pension Terms Q - T
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QSUPP: qualified Social Security supplement
Qualified Automatic Contribution Arrangement (QACA): A plan design whereby participants are automatically enrolled in the plan at a deferral rate specified in the plan document unless they affirmatively opt out of the arrangement and that also is designed to qualify for relief from certain nondiscrimination testing. A QACA is exempt from nondiscrimination testing of elective and/or matching contributions if it meets minimum contribution levels for both employee (elective) contributions, as well as employer (matching or nonelective) contributions.
Qualified Cash-or-Deferred Arrangement: See 401(k) Plan.
Qualified Default Investment Alternative: An investment alternative available to participants and beneficiaries in a self-directed account plan.
Qualified Disability Benefit: The benefit payable upon disability that is no greater than that payable should a participant separate from service at normal retirement age. This is generally interpreted to be that future service from the date of disability to normal retirement age can be imputed and a benefit determined as if the rate of pay as of the date of disability continued for the duration of the disability.
Qualified Distributions: A distribution from a designated Roth account or Roth IRA that is not includible in the recipient's gross income.
Qualified Domestic Relations Order (QDRO): A court order issued under state domestic relations law that relates to the payment of child support or alimony or to marital property rights. A QDRO creates or recognizes an alternate payee's right, or assigns to an alternate payee the right, to receive plan benefits payable to a participant. The alternate payee may be the participant's spouse, former spouse, or dependent.
Qualified Election Period: The six-plan-year period beginning with the plan year after the first plan year beginning after 1986 in which the employee is a qualified participant and during which the employee can make a diversification election.
Qualified Joint and Survivor Annuity (QJSA): An immediate annuity for the life of the participant, with a survivor annuity for the life of the participant's spouse. The amount of the survivor annuity may not be less than 50 percent, nor more than 100 percent, of the amount of the annuity payable during the time that the participant and spouse are both alive.
Qualified Matching Contributions (QMACs): Matching contributions that are 100 percent vested at all times and that are subject to the same restrictions on distributability as elective contributions, except that such contributions cannot be withdrawn on account of hardship.
Qualified Nonelective Contributions (QNECs): Nonelective contributions that are 100 percent vested at all times and that are subject to the same restrictions on distributability as elective contributions, except that such contributions cannot be withdrawn on account of hardship.
Qualified Optional Survivor Annuity ( QOSA): An annuity for the life of the participant with a survivor annuity for the life of the spouse that is equal to the applicable percentage of the amount of the annuity that is payable during the joint lives of the participant and the spouse and that is the actuarial equivalent of a single annuity for the life of the participant. For example, if the survivor annuity provided by the QJSA under the plan is less than 75 percent of the annuity payable during the joint lives of the participant and spouse, the applicable percentage is 75 percent.
Qualified Participant: An employee who has completed at least ten years of participation in an ESOP and has attained age 55.
Qualified Plan: A plan the provisions of which satisfy Code Section 401(a). Sometimes used more broadly to include plans that qualify under other Code sections.
Qualified Preretirement Survivor Annuity (QPSA): An immediate annuity for the life of the surviving spouse of a participant who dies before the annuity starting date.
Qualified Retirement Plan (Qualified Plan): A plan that meets the requirements of the Internal Revenue Code (generally Section 401(a)). The advantage of qualification is that the plan is eligible for special tax considerations. For example, employers are permitted to deduct contributions to the plan even though the benefits provided under the plan are deferred to a later date.
Qualified Replacement Plan: A plan into which at least 25 percent of the reversion from a terminated defined benefit plan is transferred in order to reduce the excise tax on reversions from 50 percent to 20 percent.
Qualified Replacement Property: Any security issued by a domestic operating corporation that did not have passive investment income (e.g., rents, royalties, dividends, or interest) that exceeded 25 percent of its gross receipts in its taxable year preceding the purchase.
Qualified Rollover Contribution: No rollover contribution may be made to a Roth IRA unless it is a qualified rollover contribution. A qualified rollover contribution is a rollover contribution to a Roth IRA from another Roth IRA or from an IRA, provided that certain requirements are satisfied. For distributions made after December 31, 2007, a Roth IRA can accept rollovers from other eligible retirement plans.
Qualified Securities: Employer securities that (1) are issued by a domestic corporation that for one year before and immediately after the sale has no readily tradable stock outstanding, and (2) have not been received by the seller as a distribution from a qualified retirement plan or pursuant to an option or other right to acquire stock granted by the employer.
Qualified Separate Line of Business (QSLOB): A line of business that meets certain IRS requirements and thus may be treated as a distinct unit for purposes of applying certain nondiscrimination requirements.
Qualified Start-Up Costs: A limited tax credit that can be taken by employers for the expenses incurred to establish and administer a plan for the first three years of its existence.
Qualifying Employer Securities: Stock, marketable obligations, and certain interests in a publicly traded partnership of the employer. In an employee stock ownership plan (ESOP), qualifying employer securities are classes of common stock that are readily tradable or stock whose voting and dividend rights are equivalent to the most favorable voting and dividend rights of any class of the employer's common stock.
Qualifying Plan Assets: Categories of plan assets under the Form 5500 audit rules for small plans.
Quality Assurance Bulletin (QAB): IRS issues QABs on topics of interest to ensure the consistent processing of case files. QABs are a resource intended for IRS use and may not be relied upon. They are updated periodically to reflect changes in position or procedures.
Rabbi Trust: A vehicle to secure payment of unfunded nonqualified plan benefits.
RASD: retroactive annuity starting date
Rate Banding: The designation that all effective accrual rates (EARs) within a certain range are equal. Bands may never overlap and must not significantly favor highly compensated employees.
Rate Group: A group established for nondiscrimination testing purposes that consists of a highly compensated employee and each other employee in the testing group with a benefit or accrual rate that equals or exceeds that of the highly compensated employee. A rate group is established for each highly compensated employee.
Ratio-Percentage Test: One of two alternative tests used for purposes of determining whether a plan meets the minimum coverage requirements. (See Average Benefits Test.)
Retirement Equity Act of 1984. (REA) This act, among other things, reduced the age requirement for participation in a plan; increased the period of service considered for vesting purposes; broadened the survivor-benefit requirements; and allowed the assignment or alienation of benefits in divorce proceedings.
Recharacterization: A mechanism that treats excess contributions as employee contributions in order to correct an ADP test that does not meet the requirements of the law.
Registered Investment Adviser (RIA): A person who is an investment advisor and is registered either with the Securities and Exchange Commission under the Investment Advisers Act of 1940 or with the state where the advisor maintains its principal office and business.
Remedial Amendment Period: The period of time during which a qualified retirement plan must be amended to conform to new legislation or other rules in order to retain its qualified status. This period is usually stated in the legislation, though it is often extended by subsequent legislation or revenue procedures. However, if a plan terminates prior to the date amendments otherwise must be adopted, the plan must be amended to conform to the applicable new rules in connection with that termination.
Replacement Period: The period beginning three months before the date of sale of employer securities to an ESOP and ending 12 months after the sale. The qualified replacement property must be purchased during this period.
Reportable Event: An event that may indicate that the plan is in danger of being terminated. ERISA requires plan administrators and sponsors of certain defined benefit plans to notify the PBGC of the occurrence of such event so as to give the PBGC enough time to protect the benefits of participants and beneficiaries. The notice must usually be given within 30 days of the occurrence of the reportable event unless the PBGC waives notice.
Required Beginning Date (RBD): The date on which plan or IRA distributions must commence to be paid.
Required Minimum Distribution (RMD): The minimum amount that must be paid each year commencing with the required beginning date.
Residual Shared Employee: An employee who provides services to a line of business but who is not a substantial-service employee.
Restructuring: The process of splitting a plan into component plans in order to pass nondiscrimination testing.
Retirement Income Account: A defined contribution program established or maintained by a church-related organization to provide 403(b) plan benefits for its employees or their beneficiaries. A retirement income account is treated as a 403(b) contract, and amounts paid by an employer to a retirement income account are treated as amounts contributed by the employer for a 403(b) contract for the employee on whose behalf the account is maintained.
Retirement Protection Act of 1994 (RPA '94): Part of GATT enacted on December 8, 1994. The primary purpose of this act was to strengthen PBGC. Among its provisions: removed impediments to funding certain plans; phased out the PBGC variable-rate premium cap; rounded down cost-of-living adjustments; and extended IRS user fee program.
Rev Proc: A revenue procedure issued by IRS. It is somewhat similar to a revenue ruling, but deals with procedural matters or details the requirements to be followed in connection with various dealings with IRS. Also sets forth (at times) guidelines that IRS follows in handling certain tax matters.
Rev Rul: A public revenue ruling issued by IRS. These rulings express IRS's views as to the tax results that apply to a specific problem.
Reversion of Employer Contributions: A qualified plan (or trust) is prohibited from diverting corpus or income for purposes other than the exclusive benefit of employees. However, this prohibition does not preclude the return of a contribution made by an employer if the contribution was made, for example, by reason of a mistake of fact or conditioned on the qualification of the plan or the deductibility of the contribution.
Risk: The possibility of deviation from a particular target; from an investor's perspective, the chance of financial loss or not attaining investment goals. Risk is often measured as the amount of unpredictable variability in the return on an investment.
Risk Tolerance: An investor's personal ability or willingness to endure declines in the prices of investments. Sometimes measured by risk tolerance questionnaires.
Rollover: A tax-free transfer of cash or other assets from one retirement plan to another. An IRA account owner may shift assets from his or her present IRA to another. Certain payouts from a qualified retirement plan may also be rolled over to an IRA or to another employer's plan.
Rollover IRA Account: An individual retirement account that is established for the purpose of receiving a distribution from a qualified retirement plan.
Roth 401(k): A type of 401(k) plan account in which salary deferral contributions are made using after-tax dollars. Distributions from a Roth 401(k) account that are qualified distributions are not subject to income tax.
Roth IRA: An IRA to which contributions are nondeductible and from which all distributions may be nontaxable.
S Corporation: A corporation whose shareholders have elected not to be taxed as a regular (or "C") corporation, but like a partnership, with profits and losses passing through directly to the shareholders, rather than at the corporate level. Subject to a number of requirements, an ESOP may be a shareholder of an S corporation.
Safe Harbor 401(k) Plan: A 401(k) plan exempt from nondiscrimination testing of elective and/or matching contributions in exchange for providing certain minimum levels of matching or nonelective contributions.
Safe Harbor Matching Contribution (SHMAC): The employer matching contribution made with the intent of passing either the ADP or ACP safe harbor provisions, thus avoiding the need for mathematical testing.
Safe Harbor Nonelective Contribution (SHNEC): The employer nonelective contribution made with the intent of passing the ADP safe harbor, thus avoiding the need for mathematical ADP testing.
Safe Harbor Percentage: A percentage determined using a table provided by the IRS and that results in a significantly lower ratio percentage to be used for purposes of the nondiscriminatory classification test (which is part of the average benefits test). The applicable safe harbor percentage is based on the non-highly compensated employee concentration percentage when performing the average benefits test and when testing rate groups.
Safe Harbor Rules: Regulations that specify plan provisions or plan operational characteristics by virtue of which more complex rules or tests need not be considered.
Salary-Reduction Arrangement: Under this type of cash-or-deferred arrangement, each eligible employee may elect to reduce his or her current compensation or to forgo a salary increase and have these amounts instead contributed to the plan on his or her behalf on a pretax basis. See also Cash-or-Deferred Plan.
Salary Reduction Catch Up Contributions: An individual who participates in a 401(k) plan or 403(b) plan, who will attain age 50 by the end of the plan year and for whom no other elective contributions may otherwise be made for the plan year because of the application of any limitation contained in the IRC or in the plan, will be able to make additional elective contributions to the plan for that plan year.
Salary Reduction Simplified Employee Pension Plan (SARSEP): A simplified employee pension under Code Section 408(k) that permits employees to make elective contributions to their IRAs. New SARSEPs may not be established after December 31, 1996.
Sarbanes-Oxley Act of 2002: This act (the Public Company Accounting Reform and Investor Protection Act of 2002) was signed into law on July 30, 2002. The act bars company directors and executive officers from trading in employer securities during a blackout period imposed on participants in individual account plans of the employer, requires plan administrators to provide at least 30 days advance notice of blackout periods to participants and beneficiaries under individual account plans, and increases criminal penalties for willful violations of ERISA's requirements. In addition, the act contains a prohibition on loans to company officers, which may be interpreted as preventing company officers from taking loans from 401(k) plans maintained by the company.
Saver's Credit: An eligible individual may be allowed a nonrefundable tax credit for the taxable year in an amount equal to the applicable percentage of the individual's qualified retirement savings contributions for the year up to $2,000.
Savings Incentive Match Plan for Employees (SIMPLE): A simplified retirement plan structured as an IRA plan or a 401(k) plan that allows employees to make elective contributions and requires employers to make matching or nonelective contributions.
Savings Plan: See Thrift Plan.
SBA '96: See Small Business Job Protection Act of 1996.
Schedule Q: An optional attachment to IRS Form 5300 used to provide the IRS certain information with respect to various coverage and nondiscrimination tests.
Section 204(h) Notice: A written notice concerning a plan amendment that provides for a significant reduction in the rate of future benefit accrual, including any elimination or significant reduction of an early retirement benefit or retirement-type subsidy. The plan administrator is required to provide in this notice, in a manner calculated to be understood by the average plan participant, sufficient information to allow participants to understand the effect of the amendment.
Section 401(k) Plan: A plan in which employees may elect to make pretax contributions to an employer-sponsored plan in lieu of receiving taxable income or make designated Roth Contributions. Also available to tribal governments but not to government entities generally. (See Cash-or-Deferred Arrangement.)
Section 403(b) Plan: An elective contribution arrangement available to employees of public schools and to employees of certain entities that are tax exempt under Code Section 501(c)(3). A 403(b) plan may also provide for employer contributions. (See Tax-Sheltered Annuities (TSA).)
Section 404(c) Plan: Any defined contribution plan meeting regulatory requirements in which a participant exercises control over the assets in his or her account such that a participant will not be considered a fiduciary by reason of that control, and no other fiduciary shall be held liable for losses resulting from that control. After Section 404(c) of ERISA.
Section 411(d)(6) Protected Benefits: Benefits, early retirement benefits, retirement-type subsidies, and optional forms of benefit are Section 411(d)(6) protected benefits to the extent they have accrued and cannot, therefore, be eliminated, reduced, or made subject to employer discretion except to the extent permitted by regulations.
Section 415 Limitations: A retirement plan will not be qualified if: (1) in the case of a defined benefit plan, the annual benefit with respect to any participant for any limitation year exceeds certain limitations, or (2) in the case of a defined contribution plan, the annual additions credited with respect to any participant for any limitation year exceed certain limitations. See also Annual Addition and Annual Retirement Benefit.
Section 417(a)(3) Explanation: The written explanation required to be provided a participant with respect to a QJSA or a QPSA.
Section 457 Plan: An elective contribution arrangement available to states, political subdivisions of a state, or any agency or instrumentality of a state and certain non governmental organizations exempt from taxation.
Segment Rate: is equal to the sum of the first, second, and third segment rates. The first segment rate is the single interest rate determined by the Treasury Department on the basis of the corporate bond yield curve with maturity during the next five years. The second segment rate is the single interest rate determined by the Treasury Department on the basis of corporate bond yield curve with maturity between the fifth and twentieth years. The third segment rate is the single interest rate determined by the Treasury Department on the basis of the corporate bond yield curve with maturity beyond the twentieth year. [IRC § 430(h)(2)(C)] The corporate bond yield curve reflects a 24-month average of the monthly yields of investment grade corporate bonds with varying maturities that are in the top three quality levels available. [IRC § 430(h)(2)(D)] If the plan is in existence in 2007, then the segment rates may be blended with the old current liability rates for a three-year phase-in (1/3 new to 2/3 old for 2008, 2/3 new to 1/3 old for 2009, 100 percent new in 2010). This phase-in is optional; a plan may elect not to use this transition rule. [IRC § 430(h)(2)(G)]
Self-Correction Program (SCP): IRS program designed to allow plan sponsors to correct insigificant operational failures at any time and to correct significant operational failures within a two-year period.
Self-Directed Account Plan: An individual account plan that permits a participant to make an independent choice from a broad range of investment alternatives regarding the manner in which any portion of the assets in the participant's individual account is invested.
Self-Employed Person: A sole proprietor or a partner in a partnership.
Separate Line of Business: All employees of a single employer are taken into account for purposes of applying the minimum coverage requirement and, if applicable, the minimum participation requirement. However, if an employer is treated as operating qualified separate lines of business, the employer is permitted to apply the minimum coverage requirement separately with respect to the employees of each qualified separate line of business. A similar exception (but only with IRS consent) is provided for purposes of applying the minimum participation requirement.
Service Organization: An organization in which capital is not the material income-producing factor. Organizations considered to be service organizations generally generate income through fees, commissions, and other types of compensation for personal services.
Shared Employee: An individual who works for two or more employers under a sharing arrangement.
Shareholder-Employee: An employee who owns more than 5 percent of the capital stock of a corporation that is taxed as a Subchapter S small business corporation.
Shifting: This term usually refers to the process of using deferrals in the ACP test. Shifting is permissible only if the plan passes the ADP test both before and after the shift.
Shortfall Amortization Base: is equal to the funding shortfall for the year less the present value of future shortfall amortization installments (due to prior shortfall amortization bases) less the present value of waiver amortization installments from prior years. All gains and losses are considered in the shortfall amortization. [IRC § 430(c)(3)]
Shortfall Amortization Charge: The aggregate total of the shortfall amortization installments for a plan year with respect to the shortfall amortization bases.
Shortfall Amortization Installments: is equal to the amount to amortize, with level payments, the shortfall amortization base for a plan year over seven years, amortized using segment rates in effect in the year the base is established. [IRC § 430(c)(3)]
SIC: Standard Industrial Classification
SIMPLE: See Savings Incentive Match Plan for Employees.
Simplified Employee Pension (SEP): A retirement program that takes the form of individual retirement accounts for all eligible employees (subject to special rules on contributions and eligibility).
Single Employer Pension Plan Amendments Act (SEPPAA): The Act that changed the single-employer defined benefit plan termination rules of Title IV of ERISA.
Small Business Job Protection Act of 1996 (SBJPA '96): Enacted on August 20, 1996. This act adopted many pension simplification provisions.
SMM: See Summary Description of Material Modifications.
Snapshot Testing: A testing methodology set forth in Revenue Procedure 93-42, which permits a plan to be tested for coverage based on a single snapshot date. The snapshot date can be any day of the plan year; however, the demographics on such date must be reasonably representative of the work force and coverage under the plan throughout the plan year.
Social Security Retirement Age (SSRA): For purposes of calculating adjustments with respect to formulas in defined benefit plans using permitted disparity, the age used as the retirement age under the Social Security Act (rounded to the next lower whole number) that depends on the calendar year of birth.
Sole Proprietor: The owner of 100 percent of an unincorporated business.
Split-Funded Plan: A plan that is funded in part by insurance contracts and in part by funds accumulated in a separate trusteed fund.
Spousal IRA: An IRA that is established for the nonworking spouse of an employee who qualifies for an IRA. The total amount of allowable annual contributions to the working spouse's IRA and to the spousal IRA is double the dollar amount in effect for the taxable year (or 100 percent of the working spouse's earnings if less). The contributions to both IRAs need not be split equally between the spouses. However, the maximum IRA contribution on behalf of either spouse is the dollar amount in effect for the taxable year. A spousal Roth IRA is also permitted.
Standard Termination: The termination of a single-employer defined benefit plan covered by PBGC that is able to pay all its benefit liabilities.
Standardized Plan: A prototype plan that is designed to satisfy automatically the Internal Revenue Code's minimum coverage and nondiscrimination requirements.
Standardized Voluntary Compliance Resolution (VCR): A compliance program designed by the IRS to correct seven common plan defects by making application to the IRS and paying a compliance fee. The Standardized VCR program sets forth mandated corrective methodologies that must be followed in order to obtain compliance.
State Income Taxation of Pension Income Act of 1995: Enacted on January 10, 1996. This act prohibits states from taxing the retirement income payments of their former residents.
Statutory Exclusion: The class of employees who may be excluded from coverage, participation, and nondiscrimination testing.
Stock: A security that represents part ownership, or equity, in a corporation.
Stock Attribution: Rules designed to attribute the stock owned by certain family members of highly paid owners.
Stock Bonus Plan: A defined contribution plan that is similar to a profit sharing plan except that benefit payments generally must be made in employer company stock. See also Profit Sharing Plan and Employee Stock Ownership Plan.
Stock Fund: A mutual fund whose holdings consist mainly of stocks.
Strategic Alliance: A group of two or more service providers that have entered into an agreement that enables them to offer a unified package of plan services.
Subchapter S Corporation: See S Corporation.
Substantial-service Employee: An employee who provides at least 75 percent of the employee's services to a specific line of business under the qualified separate line of business rules.
Substantiation Guidelines: IRS guidelines that permit a plan to perform coverage and nondiscrimination testing using the best data available at a reasonable cost. This is permitted provided that the data is reasonably reflective of the demographics of the group.
Summary Annual Report (SAR): A report of overall plan financial information provided to each participant in a format published by the DOL. The information is derived from the Form 5500 series annual report.
Summary Description of Material Modifications (SMM): Any change in the provisions of the plan or in the administration of the plan that constitutes a material modification must be disclosed to participants and beneficiaries. See Summary Plan Description.
Summary Plan Description (SPD): A detailed, but easily understood, summary describing a retirement plan's provisions that must be provided to participants and beneficiaries.
Table 2001: Costs applied to current life insurance protection provided under the plan for purposes of determining the amount of the participant's tax liability for the coverage.
Technical and Miscellaneous Revenue Act of 1988.(TAMRA):Contained many corrections to and clarification of OBRA '87 and TRA '86.
Target Benefit Plan: A cross between a defined benefit plan and a money purchase plan. Similar to a defined benefit plan, the annual contribution is determined by the amount needed each year to accumulate a fund sufficient to pay a targeted retirement benefit to each participant on reaching retirement. Similar to a money purchase plan, contributions are allocated to separate accounts maintained for each participant.
Target Normal Cost: is equal to the present value of benefits accrued during the current year, including the increase in accrued benefit attributable to compensation increases. [IRC § 430(b)] The target normal cost for a plan in at-risk status for a year is equal to the present value of the benefits accruing for the year using the additional actuarial assumptions plus, if the plan has been at-risk for two out of the last four years, a loading factor. [IRC § 430(i)(2)] In no event will the at-risk target normal cost be less than the regular target normal cost determined without regard to the plan’s at-risk status. There is a transition allowed for plans that have been in at-risk status for less than five years where a certain percentage of deficiency is allowed to be added back in when determining the target normal cost based on the number of consecutive years the plan has been in at-risk status. [IRC § 430(i)(5)]
Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA): Enacted on May 17, 2006. This act contains a provision repealing the income limits on conversions of traditional IRAs to Roth IRAs, starting in 2010. TIPRA also imposes an excise tax on any entity manager of a tax-exempt entity who knowingly approves a prohibited tax-shelter transaction.
Tax Reform Act of 1984 (TRA '84): Enacted on July 18, 1984. This act, among other things, delayed, until 1988, cost-of-living increases in contributions and benefits; repealed the estate tax exclusion for death benefits from a pension plan or an IRA; allowed partial distributions from a pension plan to be rolled over to an IRA; and applied restrictive distribution rules to 5 percent owners only.
Tax Reform Act of 1986 (TRA '86): Enacted on October 22, 1986. This act made such major changes to the Code that it resulted in the Code being renamed the "Internal Revenue Code of 1986."
Tax-Sheltered Annuity (TSA): See 403(b) Plan.
Tax Technical Corrections Act of 1998 (TTC '98): Enacted on July 22, 1998 as Title IV of the Internal Revenue Service Restructuring and Reform Act of 1998. This act made significant changes to the Roth IRA.
Taxable Year: The 12-month period used by an employer to report income for income tax purposes. The employer's taxable year does not have to coincide with the year used by the plan to keep its records.
Taxable Wage Base: An amount determined each year by the Social Security Administration. Compensation in excess of the taxable wage base for the year is not subject to the Old Age, Survivors and Disability (OASDI) portion of Social Security tax. The taxable wage base is adjusted each year.
Taxpayer Relief Act of 1997 (TRA '97): Enacted on August 5, 1997. This act contained many provisions affecting qualified retirement plans and IRAs and also created the Roth IRA.
TEFRA: Tax Equity and Fiscal Responsibility Act of 1982. Lowered limits on contributions and benefits for corporate plans; certain loans from plans to be treated as distributions; reduced estate tax exclusion for retirement plan death benefits to maximum of $100,000; repealed special Keogh plan and S corporation restrictions; added "top-heavy" plan requirements.
10 Percent Tax on Early Distributions: If an individual receives a distribution from a qualified plan, including an IRA and a 403(b) plan, prior to age 59 1/2 , the individual's tax for the taxable year in which the distribution is received is increased by an amount equal to 10 percent of the portion of the distribution includible in gross income, unless an exception applies.
Testing Age: The age from which present value is calculated when normalizing an accrual or benefit. If the testing age is 65, the present value of $1 at age 65 will be $1 and the present value of $1 at any lesser age will be a lesser amount. For purposes of testing, Social Security normal retirement age can be used as the testing age, resulting in older employees' having a lower testing age than their younger counterparts.
Testing Period: The period of time used for purposes of coverage testing. The testing period dictates the testing group and which employees within that testing group are considered to be benefiting. The testing period options prescribed in the regulations are annual testing, quarterly testing, and daily testing. In addition, a plan is permitted to use snapshot testing.
Testing Service: An employee's years of service as defined in the plan for purposes of applying the nondiscrimination tests. Testing service can be equal to the current plan year; the current plan year and all prior years; or, in some cases, the current plan year, all prior years, and all future service.
Testing Universe: The plan being tested and all other plans of the employer that could be permissively aggregated for ratio percentage and nondiscriminatory classification purposes.
Third-Party Administrator: A plan administrator who is unrelated to the sponsoring employer.
Thrift Plan: A defined contribution plan that is contributory in the sense that employer contributions are geared to mandatory contributions by the employee. Employer contributions are made on a matching basis --for example, 50 percent of the total contribution made by the employee.
Top-Hat Plan: An unfunded nonqualified plan for a select group of management or highly compensated employees.
Top-Heavy Plan: A plan that primarily benefits key employees is considered top-heavy and qualifies for favorable tax treatment only if, in addition to the regular qualification requirements, it meets several special requirements. See also Key Employee.
Top Paid Group: A group consisting of the top 20 percent of employees ranked on the basis of compensation paid during the year for purposes of determining highly compensated employees for any year.
Trades or Businesses under Common Control: Two or more corporations, partnerships, or sole proprietorships that, by virtue of common ownership, are treated as a single entity for purposes of certain employee benefit requirements under Code Section 414(c).
Treasury Regulations: Regulations promulgated by the Treasury Department. IRS is a part of the Treasury Department, and regulations interpreting the Internal Revenue Code are technically Treasury regulations.
Trust: A fund established under local trust law to hold and administer the assets of a plan.
Trustees: The parties named in the trust instrument or plan that are authorized to hold the assets of the plan for the benefit of the participants. The trustees may function merely in the capacity of a custodian of the assets or may also be given authority over the investment of the assets. Their function is determined by the trust instrument or, if no separate trust agreement is executed, under the trust provisions of the plan.
Truth-in-Lending: Federal law governing consumer credit transactions that provides for uniform disclosure of annual credit cost, finance charges, amount financed, and total payments to be made.
TSA: See 403(b) plan.
TTC '98: See Tax Technical Corrections Act of 1998.
12b-1 Fee: A fee for advertising, marketing, and distribution services of a mutual fund.
