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| NYLIM Retirement Services Glossary |
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| A |
| Accrued benefit |
A benefit earned by an employee through participation in a plan. In a defined contribution plan, it is the balance in the individual account at a particular time. For defined benefit plans, it generally refers to the benefit that will be provided when the participant reaches normal retirement age, as defined by the plan document.
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| Active participants |
Eligible individuals who have hours of service and make contributions to a retirement plan.
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| Actual Contribution Percentage (ACP) |
The average of the ratios of aggregate contributions (matching contributions and after-tax employee contributions) to compensations. It is figured for two groups: HCEs and NHCEs. The ratio for each employee is calculated, and then it is averaged for the group.
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| Actual deferral percentage |
A nondiscrimination test applied to elective contributions (most commonly employee pre-tax contributions) to determine if those contributions discriminate in favor of highly compensated employees.
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Actuarial
assumptions |
Assumptions made by a plan actuary in determining plan benefits for a defined benefit plan, including plan investment return, discount rate, employee turnover, retirement age, salary, and life expectancy. These assumptions are used to determine the annual required contribution to the plan.
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| Actuarial equivalent |
A term that describes a situation where the present value of two different sets of values are equal, given a specific set of actuarial assumptions. Commonly used when comparing varying optional forms of benefits under a plan.
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| Actuary |
A person who is qualified by training or experience to make the necessary computations for the valuation of a pension plan.
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Administrator/
plan administrator |
The person or entity charged with the responsibility of administering the terms (provisions) of the plan.
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| Adoption agreement |
A document, which is a custodial contract between an individual, or plan sponsor, and a financial institution.
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| Affiliated service group |
A group of two or more related organizations that are treated, for various employee benefit requirements, as a single employer. Employees of these affiliates are treated as though they are employed by a single employer to determine plan qualification.
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| Age-weighted |
Plan in which contributions are allocated to participants on a basis that considers both age and compensation.
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| Alienation |
Assignment of benefits; the voluntary partition of a participant's vested account balance between a participant and spouse in a qualified domestic relations order. With that single exception, ERISA generally prohibits alienation of a participant's benefits, including bankruptcy circumstances. see anti-alienation
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| Allocation |
The employer’s contribution to a defined contribution plan.
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| Alpha |
A numerical value indicating a portfolio manager's risk-adjusted excess rate of return relative to a benchmark. Measures a portfolio manager's "value-added" in selecting individual securities, independent of the effect of overall market movements.
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| Alternative Minimum Tax |
A federal tax meant to ensure that wealthy individuals, estates, trusts, and corporations pay a sufficient amount of income tax.
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| Amendment |
Changes made to an existing plan.
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| Annual Percentage Yield (APY) |
The effective, or true, annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of compounding.
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| Annualized |
The average rate of return produced by a mutual fund during a specified holding period (e.g. 3, 5, or 10 years).
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| Annuity |
A contract between an individual and an insurance company that provides for periodic payments to the individual or designated beneficiary in return for an investment. Typically, an annuity agrees to provide payments to the annuitant beginning at some future date. The payments may continue for the lifetime of the annuitant, or for an agreed-upon term of years.
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| Anti-alienation |
Qualified plans that are subject to Title I; should be protected from the reach of plan participants' creditors in bankruptcy.
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| Anti-cutback |
Provisions in the Internal Revenue Code that prohibit an employer from reducing accrued benefits.
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| Appreciation of capital |
The rise in the share price of a security. In terms of a mutual fund, capital appreciation is measured by an increase in its net asset value (NAV).
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| Asset allocation |
The process of strategically distributing one's money among various asset classes, such as stocks, bonds and money market securities. Asset allocation is used to seek maximum investment returns while minimizing investment risk. Prudent asset allocation has been found to be a key determinant of investment portfolio success.
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| Asset-Backed Securities (ABS) |
A security that is collateralized by loans, leases, receivables, or installment contracts on personal property, rather than real estate.
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| Asset class |
Categories of different types of assets, such as stocks or bonds.
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| Asset reversion |
Following the termination of a single-employer, private, or defined benefit pension plan, the recovery by the sponsoring employer of any pension fund assets in excess of those required to pay accrued benefits. Under current law, assets recovered through reversion are subject to regular corporate income tax and an additional excise tax.
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| Audit |
To examine with the intent to verify.
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| Auditor |
A certified public accountant who examines a company's books according to a set of procedures and issues a report.
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| Average contribution percentage |
A nondiscrimination test applied to employer matching and employee (after-tax) contributions, to determine if those contributions discriminate in favor of highly compensated employees.
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| Average cost per share |
The average cost of mutual fund shares or stock purchased during different time periods.
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| Average Deferral Percentage (ADP) |
An anti-discrimination test that compares the amount deferred by HCEs to the deferrals on NHCEs.
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| B |
Back-to-back
transaction |
When a security is bought and sold in such rapid succession that the buyer has to deliver on the sale before the purchase is received.
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| Back-End Load/CDSC |
A fee imposed by mutual funds to sell shares during a specified time period. For Class B shares the fee decreases the longer the investor holds the shares. Class C shares typically apply the fee to shares sold during the first year. The formal name for the back-end load is contingent deferred sales charge, or CDSC.
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| Bad boy clause |
Permitted forfeitures imposed because of employee dishonesty or violation of a promise not to compete.
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| Balanced fund |
A mutual fund that typically diversifies its assets among a variety of classes, such as stocks, bonds and money market securities. The allocation of assets may change based on the prevailing market conditions.
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| Bank and bank holding company obligations |
Short-term debt obligations sold by bank holding companies.
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| Basis point |
A measure that equals one one-hundredth of one percent. For example, 50 basis points equal 0.50%.
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| Basket |
A basket applies to derivative instruments in the marketplace. A basket is a group of stocks that is formed with the intention of either being bought or sold all at once.
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| Bear market |
Any market in which prices exhibit a declining trend. A market is often classified as a bear when it has fallen 20% or more.
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| Benchmark |
The performance of a predetermined set of securities, used for comparison purposes (e.g. the S&P 500 Index for the overall stock market). Mutual fund returns are compared to specific benchmarks to help investors evaluate their performance.
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| Beneficial owner |
The entity which enjoys the benefits of ownership of the effected securities despite title being in the name of another entity.
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| Beneficiary/beneficiaries |
A person, persons, or trust designated to receive the plan benefits of a participant in the event of the participant’s death.
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| Beta |
A measure of the magnitude of a portfolio's past share-price fluctuations in relation to the ups and downs of the overall market (or appropriate market index). The market (or index) is assigned a beta of 1.00, so a portfolio with a beta of 1.20 would have seen its share price rise or fall by 12% when the overall market rose or fell by 10%.
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| Bid and ask price |
The price a potential buyer is willing to pay for a security. The ask price is the lowest price a person or institution will accept to sell a security. The difference between the bid and ask price is referred to as the bid-ask spread.
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| Blackout |
A period of time during which participants are not allowed to make changes to their 401(k) balances. This generally occurs during a conversion to a new recordkeeper or when significant changes are being made to the plan. The blackout gives the providers time to test and validate the new platform and/or provisions.
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| Blue chips |
A term used to describe large, established and creditworthy companies. These firms generally have widely accepted use of their products or services and many are household names.
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| Bond |
A debt security, or IOU, issued by a company, municipality or government agency. A bond investor lends money to the issuer and, in exchange, the issuer promises to repay the loan amount on a specified maturity date. In addition, the issuer usually provides the bondholder periodic interest payments.
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| Bonding (requirement) |
Insurance coverage carried by brokerage firms to protect investors from losses due to employee dishonesty such as larceny and embezzlement.
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| Bottom-up investing |
An approach to investing which seeks to identify well-performing individual securities before considering the impact of economic trends.
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| Brady bonds |
Bonds issued by emerging countries under a debt reduction plan.
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| Break a trade |
To prematurely unwind a long or short position in a security with respect to the intended strategy.
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| Break in service/one-year break in service |
The applicable computation period during which an employee has not completed more than 500 hours of service with the employer. Generally, no service credits or vesting accumulations occur during this period.
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| Bull market |
A market where prices are experiencing an upward trend.
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| Business risk |
The risk that a company issuing a security may not be financially healthy due to any number of factors, such as poor management, low product demand, or exorbitant operating expenses.
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| Buying-in |
A buy-in occurs when a seller fails to receive securities from a counterparty on settlement date, at which time the seller may be obliged to 'buy in' the securities in the open market. More specifically, a buy-in can refer to the purchase of securities by a securities lender, using the borrower's collateral, in the event of borrower default.
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| C |
| Cafeteria plan |
A tax-qualified arrangement under which participants may elect a combination of various taxable and tax-preferred forms of compensation, often including but not limited to cash, health insurance, 401(k) plan contributions, life insurance, child care, and additional vacation days. Also called a flexible benefit plan or Section 125 plan after the section of the tax code that allows for the creation of flexible benefit plans.
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| Calendar year |
A calendar year is 12 consecutive months beginning January 1 and ending December 31.
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| Capital appreciation |
The rise in the share price of a security. In terms of mutual funds, capital appreciation is measured by an increase in its net asset value (NAV).
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| Capital gain(s) |
The difference between the sale price of an asset—such as a mutual fund, stock, or bond—and the original cost of the asset.
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| Capital gains distribution |
A distribution a mutual fund makes out of profits from selling stocks or bonds that is subject to capital gains taxes for the shareholders.
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| Capital structure arbitrage |
Investment strategy that seeks to exploit pricing inefficiencies in a firm's capital structure. Strategy will entail purchasing the undervalued security, and selling the overvalued, expecting the pricing disparity between the two to close out.
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| Career-average formula |
A formula in which benefits from a defined benefit plan are calculated as a percentage of average pay received throughout a participant's entire service, (usually) multiplied by total years of service. The type of formula generally used to calculate benefit accruals in a cash balance plan.
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| Carryover of contribution |
Created whenever the employer's contribution for a given year exceeded the maximum allowable deductions for that year. Allows employers to make larger contributions in earlier, more profitable years.
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| Carryover of deduction |
Credit that occurs when the employer's contribution for the year was less than the maximum allowable deduction of 15% covered compensation. It enables employers to take a larger tax deduction.
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Cash and carry
trade |
A strategy in which a futures contract is sold and a cash instrument is bought in order to profit from a price discrepancy.
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| Cash or Deferred Arrangement (CODA) |
A type of profit sharing or stock bonus plan in which employees may defer current pre-tax compensation.
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| Cash equivalents/cash investments |
The value of a mutual fund's assets that can be converted into cash immediately. These include bank accounts and marketable securities, such as government bonds and Banker's Acceptances.
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| Cash-out |
The distribution of assets from a qualified plan to a participant prior to retirement, typically occurring when a participant has a balance under $5,000 and leaves a company without requesting to have their assets rolled over into an IRA or into a new employer’s plan. Cash-outs are subject to federal withholding tax, and are subject to the 10% early withdrawal penalty if not rolled over.
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| Charitable Remainder Annuity Trust |
This is a trust under section 664(d)(1) that pays a fixed dollar amount (not less than 5% but no more than 50% of the initial net fair market value of all property placed in trust), at least annually, to one or more beneficiaries, at least one of which is not a charitable organization, for life, or for a specified number of years (not to exceed 20). Upon termination of the payments, the remainder interest (valued at 10% or more) is transferred to a charitable organization described in section 170(c), or qualified employer securities are transferred to an employee stock ownership plan.
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| Charitable remainder unitrust |
This is a trust under section 664(d)(2) similar to a charitable remainder annuity trust, except that it pays, at least annually, a fixed percentage (not less than 5% but no more than 50%) of the net fair market value of the trust’s assets.
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| Cherry picking |
A liquidator's choosing to fulfill only these obligations of the borrower that are in the borrower's interest and default on the others.
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| Cliff vesting |
Full vesting after a specified length of service with no vesting prior to that time.
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| Code |
The Internal Revenue Code of 1986 as amended or replaced.
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Collectively
bargained plan |
Plans that are established and maintained pursuant to a collective bargaining agreement.
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| Commercial paper |
Short-term unsecured promissory notes issued by corporations. The maturity of commercial paper is typically less than 270 days.
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| Commitment fee |
A fee paid a lender for the exclusive use of a portfolio, whether the securities in it are borrowed or not.
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| Common-law employee |
Individual who performs services for the employer in an employment relationship; partners in a partnership and sole proprietors are not included.
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| Common stock |
A type of equity security. Common stocks represent equity ownership in a company. Common shares let an investor vote on such matters as the election of directors. They also give the holder a share in a company's profits via dividend payments or the capital appreciation of the security.
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| Compensation |
The amount of a participant's taxable and nontaxable wages that is considered for purposes of a certain employee benefit requirement.
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| Complete discontinuance |
Complete plan termination and final distribution of plan assets.
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| Compounding |
Earnings on an investment's gains, which, over time, can produce significant growth in the value of an investment. For example, if your investments earn 10% a year for five years, you earn 61.1%, not 50%. That's because, as time goes on, you make money not only on your original investment, but also on your accumulated gains from previous years.
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| Concentrated Investment |
A mutual fund that concentrates its holdings on a limited number of securities, or that focus on a particular area of the market (e.g. technology stocks). Non-diversified funds are generally riskier than more diversified funds.
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| Conduit borrower |
An intermediary in the securities lending chain, acting as principal, which borrows securities in order to lend them at a higher spread to another borrower whose credit may not be acceptable to the original lender.
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| Conduit IRA |
An individual retirement account that is established for the sole purpose of receiving a distribution from a qualified plan so that the assets can subsequently be rolled over into another qualified plan.
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| Consumer Price Index (CPI) |
A measurement that tracks how the general level of prices for goods and services is rising.
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| Contingent Deferred Sales Charge (CDSC) |
The formal name for the back-end load is contingent deferred sales charge, or CDSC. A CDSC applies when a mutual fund charges investors a fee to sell shares during a specified time period. For Class B shares the fee decreases the longer the investor holds the shares. Class C shares typically apply the fee to shares sold during the first year of ownership.
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| Contribution |
Money placed in an IRA, an employer-sponsored retirement plan, or other retirement plan for a particular tax year. Contributions may be deductible or nondeductible, depending on the type of account.
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| Controlled group |
Employees of corporations that are treated as employed by a single employer for plan qualification purposes. Certain tests must be met to qualify as one of the three types of control groups which are: 1) the parent-subsidiary controlled group; 2) the brother-sister controlled group; and 3) the combined group.
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Convertible
arbitrage |
Investment strategy that seeks to exploit pricing inefficiencies between a convertible bond and the underlying stock. Manager will typically long the convertible bond and short the underlying stock.
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| Convertible security |
A security that can be converted into common stock at the option of the security holder. Convertible securities can include convertible bonds and convertible preferred stock.
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| Corporate debt |
Non-government-issued interest-bearing or discounted debt instrument that obligates the issuing corporation to pay the bondholder a specified sum of money, at specific intervals, and to repay the principal amount of the loan at maturity.
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| Cost of carry |
Out-of-pocket costs incurred while an investor holds a position. Costs of carry may include the interest cost of financing long positions, securities borrowing fees on short positions, and incidental expenses. Costs of carry may also refer to the net cost (negative carry) or return (positive carry) on a position when its yield is taken into account as well.
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| Cost-of-living adjustment (COLA) provision |
Provision for the adjustment of payment designed to offset changes in the cost of living, usually as measured by the consumer price index.
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| Cost basis |
The amount you pay for your mutual fund shares, including commissions and any reinvested dividends or capital gain distributions, less any non-taxable distributions or returns of capital. When you redeem shares, you subtract the cost basis of your shares from the redemption amount to determine any capital gains or losses.
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| Coverdell Education Savings Account |
Formerly known as Education IRA, it is a type of individual retirement account enabling the contribution each year for each child up to the age of 18 by the parents in the family.
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| Credit risk |
The possibility that a bond issuer will fail to repay interest and principal in a timely manner.
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| Cross-tested |
A test for qualified plans with respect to the equivalent amount of benefits to determine that the plan does not discriminate in favor of highly compensated employees.
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| Currencies |
Money issued by governments. Some of the most well known and traded currencies include the U.S. dollar and the Japanese yen.
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| Currency risk |
The risk that fluctuations in the exchange rate between the U.S. dollar and a foreign currency may decrease the value of a security that is either invested in, or whose value is derived upon that currency. Global and international investments are most subject to this type of risk.
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| Current income |
A mutual fund objective that seeks to provide shareholders with a regular stream of income typically derived from dividends.
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| Custodial account |
An account established for the safekeeping of plan assets, but with no discretion or responsibility for managing those assets.
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| D |
| Daylight exposure |
Intra-day settlement risk, i.e., the risk that in the time between delivery of the securities and receipt of collateral (or vice versa) one counterparty to a securities lending transaction will go bankrupt.
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| Debt |
A liability required to be paid by a specific date.
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| Debt securities |
IOUs created through loan-type transactions-commercial paper, bank CDs, bills, bonds, and other instruments.
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Dedicated loan
broker |
A separately-capitalized company engaged only in the business of intermediating as principal in securities lending transactions.
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| Deduction |
Something that may be subtracted from taxable income.
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| Deferred compensation |
The portion of the participant's total compensation which has been contributed to the plan.
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Defined benefit plan
(DB plan) |
A retirement plan that promises to pay a certain amount, usually based on the number of years of service and on the average salary in the period before retirement. Employers generally bear all investment risk.
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Defined contribution plan
(DC plan) |
A retirement plan offering a benefit that depends on the total contributions made by the employer and the employee, and on the investment returns earned by those contributions. Employees generally bear the investment risk.
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| Definitely determinable |
A pension plan must provide for the payment of definitely determinable benefits to employees upon retirement or over a period of years after their retirement, or to their beneficiaries—benefits to be determined without regard to the employer's profits. Benefits actually payable need not be definitely determinable provided the contributions can be determined actuarially on the basis of definitely determinable benefits.
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| Department of Labor |
The U.S. Department of Labor (DOL) deals with issues related to the American workforce—including topics concerning pension and benefit plans. Through its branch agency the Pension and Welfare Benefits Administration, the DOL is responsible for administering the provisions of Title I of ERISA.
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| Derivative instruments |
A financial security such as an option or future whose value is derived, in part, from the value and characteristics of another security, the underlying asset.
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| Desk rate |
An expression for the "normal" or standard securities lending fee applicable before any special circumstances are taken into account.
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| Determination letter |
Document issued by the IRS formally recognizing that the plan meets the qualifications for tax-advantaged treatment.
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| Direct lender |
An institutional lender that negotiates securities loans directly with the borrower and makes its own decisions regarding who to lend to, what to lend, and what collateral to accept.
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| Direct transfer |
A distribution to an employee made in the form of a direct trustee-to-trustee transfer from a qualified retirement plan to an eligible retirement plan.
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| Disability |
Inability to pursue an occupation because of physical or mental impairment.
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| Disqualified, disqualify |
Loss of qualified (tax-favored) status by a plan, generally resulting from operation of the plan in a manner that is contrary to the provisions of the plan or that discriminates against rank-and-file employees. A disqualified plan must disgorge its assets, creating tax consequences for both the sponsoring company and participants.
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| Disqualified person |
A person who, because of his or her 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.
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| Distressed securities investing |
Investment strategy focusing on troubled or restructuring companies at deep discounts through stocks, fixed income, bank debt, or trade claims. Seeks to exploit possible pricing inefficiencies caused by the lack of large institutional investor participation.
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| Distributions |
Amounts paid to shareholders of a mutual fund. Income distributions represent income received by the fund and may be taxable or tax exempt. Capital gain distributions represent capital gains received by the fund and are taxable, even if the fund invests in tax-exempt securities. Non-taxable distributions represent the return of capital investors paid into the fund and are not subject to income tax.
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| Diversification |
Diversification is the concept of spreading your money across different types of investments and/or issuers to potentially moderate your investment risk.
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| Distributor |
The legal entity that distributes the shares of a mutual fund.
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| Diversification |
The process of dividing investment assets among a variety of securities or asset classes that have different risk and reward characteristics. Prudent diversification can help to lower overall investment risk.
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| Dividend |
Income paid by a company or mutual fund to its shareholders. Mutual funds may receive dividends on common and preferred stock, as well as from income investments. This income may be distributed to shareholders in income distributions, which may be taxable or tax-exempt, depending on the nature of the fund and its investments. Also called "ordinary dividends."
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| Domestic relations order (DRO) |
Judgment, decree, or court order (including approval of a property settlement agreement) made pursuant to a state domestic relations law (including a community property law) that relates to the provision of child support, alimony payments, or marital property rights to an alternate payee.
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| DJIA |
The Dow Jones Industrial Average. A price-weighted average of 30 actively traded blue-chip stocks that typically trade on the New York Stock Exchange. The Dow, as it is called, is often viewed as a barometer of how shares of the largest U.S. companies are performing.
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| Dollar cost averaging |
An investment strategy that calls for investing a fixed amount of money at set intervals (e.g. monthly or quarterly). With a dollar cost averaging (DCA) program the investor buys more shares when the price is low and fewer shares when the price is high, thus reducing the average cost paid over time. There can be no guarantee that a DCA program will lead to a gain or avoid a loss.
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| E |
| EAFE Index |
Europe, Australasia, and Far East index (EAFE index). A stock index, computed by Morgan Stanley Capital International, often used as a benchmark for certain types of international equity funds.
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| Early distribution penalty |
There is a 10% penalty tax for withdrawal of assets from a qualified retirement plan prior to retirement. This 10% penalty tax is in addition to regular federal and (if applicable) state tax.
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| Early retirement |
Provision made in a retirement plan to allow employees who have met certain conditions, such as length of service and/or specified age, to retire prior to their regularly scheduled retirement age. In general, in case of such early retirement, the benefits which a participant can expect to receive from the plan will be less than those offered at full retirement age.
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| Earned income |
Income provided to a shareholder of a mutual fund, typically derived from dividends.
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| Education IRA |
Now named Coverdell Education Savings Account. A type of Individual Retirement Account created to pay the higher education expenses of an IRA beneficiary. The IRA contributions are nondeductible, but accumulated earnings on those contributions are nontaxable.
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| Effective Date |
The date on which a retirement plan goes into effect and coverage begins.
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| Elective deferral, salary reduction |
A contribution made to a 401(k) plan by the employer on an employee's behalf pursuant to the employee's cash-or-deferred election.
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| Eligibility |
Conditions that must be met in order to participate in a plan, such as age or service requirements.
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| Emerging markets investing |
Investments primarily in countries with developing economies (that is, those that are becoming industrialized). Emerging markets investing tends to be more volatile than domestic investing due to currency fluctuation and political instability. Consequently, investment prices can fluctuate dramatically.
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| Employee contributions |
An employee’s own deposit to a company retirement plan.
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| Employee Retirement Income Security Act of 1974 (ERISA) |
Plan sponsors are required by law to design and administer their plans in accordance with the Employee Retirement Income Security Act of 1974 (ERISA). Among its statutes, ERISA calls for proper plan reporting and disclosure to participants.
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| Employee stock ownership plan (ESOP) |
A qualified defined contribution plan in which plan assets are invested primarily or exclusively in the securities of the sponsoring employer.
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| Employer real property |
Real property (and related personal property) that is leased to an employer of employees covered by the plan, or to an affiliate of such employer. For purposes of determining the time at which a plan acquires employer real property for purposes of this section, such property shall be deemed to be acquired by the plan on the date on which the plan acquires the property or on the date on which the lease to the employer (or affiliate) is entered into, whichever is later.
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| Entitlements |
Dividends, interest, and other distributions to which a lender of securities is entitled, even when the securities are on loan.
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| Entrance frequency |
Frequency of limited partnership's shares offerings.
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| Entry date |
The date on which an employee joins the plan. Excess aggregate contribution: The excess of the total amount of employee and matching contributions made on behalf of highly compensated employees (HCEs) in a plan year over the maximum allowed under the ACP test.
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Equalization
amounts |
Distribution to limited partnership interests according to highwater provisions, to properly account for performance-based fees, which may differ among investors, depending on the investor's entry points into a fund.
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| Equity |
A term used to describe a stock. Stocks represent part ownership of a company's assets and earnings. There are two different types of stock: common and preferred. Common stocks provide voting rights, but no guarantee of dividend payments. Preferred stocks provide no voting rights, but offer a set, guaranteed dividend payment. Preferred stock also has prior claim to company assets over common stock in the case of a bankruptcy.
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| Equity Fund |
A mutual fund that invests the majority of its assets in stocks.
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Equity market
neutral investing |
Equity investing on both the long and short side, with equal dollar amounts. Will attempt to neutralize market risk and isolate a manager's alpha to achieve absolute returns.
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| Estate |
A person's assets that are earmarked to be passed down to specified beneficiaries, typically specified in a last will and testament.
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| European equity hedge |
Hedged European equity investing on both the long and short side. Although generally directional in nature, will attempt to hedge out some market risk, and achieve some level of absolute return objectives.
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Event-driven
investing |
Investment strategy seeking to identify and exploit pricing inefficiencies that have been caused by some sort of corporate event, such as a merger, spinoff, distressed situation, or recapitalization.
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| Excess contribution |
Pre-tax participant contributions that cause a plan to fail the 401(k) actual deferral percentage (ADP) non-discrimination test.
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| Excess deferral |
An employee's elective contributions for the taxable year in excess of the current deferral limit.
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| Excess retirement accumulation |
A tax of 15% imposed on large account balances at the point of distribution.
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| Exchange privilege |
The ability to exchange shares of one mutual fund for another. An exchange is viewed as a sale of one fund to make a purchase of another, and can trigger a taxable event.
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| Exchange rate |
The price of one country's currency expressed versus another country's currency.
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| Excise tax |
A nondeductible tax imposed on the occurrence of an event.
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| Exclusion ratio |
A limitation applicable to the amount of contributions to a tax-sheltered annuity that an employee may exclude from gross income for the taxable year.
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Exclusive benefit
rule |
The requirement that plan fiduciaries must discharge their duties solely in the interest of participants and beneficiaries for the exclusive purpose of providing benefits to participants and beneficiaries and paying administrative expenses.
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| Ex-date |
Date beginning on which a stock is sold without the right to receive the dividend.
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| F |
| 40l(k) plan |
A defined contribution plan that allows employees to contribute pretax dollars through salary deferral. Many plans offer a variety of investment options—including stocks, bonds, short-term reserves, mutual funds, and company stock—and employers often match a percentage of employee contributions. 401(k) savings grow tax deferred until retirement (or early withdrawal, in which case a penalty tax applies).
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| 403(b) plan |
Tax-sheltered retirement plans available to employees of government agencies and nonprofit organizations such as hospitals and universities. A 403(b) account is established by an individual and is similar to an IRA. A 403(b)(7) plan is offered by the employer and allows workers to contribute pretax dollars to selected investments.
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| 404(c) |
A section of ERISA dealing with participant self-direction. The section has garnered much interest as a means for plan sponsors to avoid or reduce fiduciary liability for participant investment choices in a participant-directed investment plan. In order to qualify, the plan must comply with specific requirements regarding information about investment options, number and type of investment options, as well as an ability to move balances between those options on a reasonably frequent basis.
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| 412(i) plan |
"Code section 412(I) insurance contracts" are contracts that provide retirement benefits under a plan that are guaranteed by an insurance carrier. In general, such contracts must provide for level premium payments over the individual’s period of participation in the plan (to retirement age), premiums must be timely paid as currently required under the contract, no rights under the contract may be subject to a security interest and no policy loans may be outstanding. If a plan is funded exclusively by the purchase of such contracts, the otherwise applicable minimum funding requirements of section 412 of the Code and section 302 of ERISA do not apply for the year and a Schedule B is not required to be filed.
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| 457 plan |
Allows state and local government and tax exempt organizations to set up deferred compensation plans similar to a 401(k). This plan is not subject to ERISA. The funds belong to the employer, subject to the claims of the employer's general creditors.
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| 529 plan |
A college savings plan sponsored by individual states. Like a Coverdell Education Savings Account (formerly known as Education IRA), contributions to a 529 are made with after-tax dollars and any earnings compound tax-deferred. In addition, beginning in 2002, when the money is withdrawn for qualified higher education expenses both the contributions and earnings are not subject to taxes.
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| FDIC |
Federal Deposit Insurance Corporation—A federal institution that insures bank deposits up to certain limits. Mutual funds, including money market funds, are not FDIC insured—even those funds that are sold through banks or other financial institutions.
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| Fee and expenses |
Debits to a mutual fund's balance sheet. A fund's fees and expenses can take many forms, such as shareholder fees and annual operating expenses. A mutual fund's fees and expenses must be specified in its prospectus.
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| FICA |
Federal Insurance Contributions Act—The law that provides for social security and Medicare benefits. This program is financed by payroll taxes imposed equally on the employer and the employee.
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| Fidelity Bond |
Insurance coverage carried by brokerage firms to protect investors from loss due to employee dishonesty such as larceny and embezzlement.
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| Fiduciary |
A person with the authority to make decisions regarding a plan’s assets or important administrative matters. Fiduciaries are required under ERISA to make decisions based solely on the best interests of plan participants.
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Fiduciary duty/
fiduciary duties |
Responsibility to act with loyalty and prudence, to diversify plan assets, and act in accordance with plan documents.
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| FIFO |
First-In, First-Out—an accounting method for valuing the cost of goods sold that uses the cost of the oldest item in inventory first. For mutual funds, this applies to the first shares purchased.
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| Fill or Kill |
The offer of first right of refusal to a potential borrower who has "iced" or put stocks on "hold" once another party has committed to borrow the shares. The original party must either commit to borrow or release the hold.
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| Financial advisor |
A professional offering financial advice to clients for a fee and/or commission. Many investors turn to financial advisors to develop and monitor a financial plan that is geared toward meeting a specific goal/s, given their individual time horizon and risk tolerance.
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| Fiscal year |
Accounting period covering 12 consecutive months over which a company derives its earnings and profits. A fiscal year does not necessarily correspond to the calendar year. All mutual funds have fiscal years.
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| Fixed income arbitrage |
Investment strategy that seeks to exploit pricing inefficiencies in fixed income securities and their derivative instruments. Typical investment will involve long a fixed income security or related instrument that is perceived to be undervalued, and short a similar, related fixed income security, or related instrument.
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| Fixed income directional |
Fixed income investing on the long or short side, based on a manager's view of current market pricing of fixed income securities.
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| Fixed-income security |
A term used to describe certain types of bonds.
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| Fixed rate investment |
An investment that pays a fixed, rather than variable, rate of return.
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| Flexible benefit plan |
A qualified arrangement under which participants may elect a combination of various taxable and tax-preferred forms of compensation, often including but not limited to cash, health insurance, 401(k) plan contributions, life insurance, child care, and additional vacation days. Also called a cafeteria plan.
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| Flexible spending account |
A type of flexible benefit plan that allows employees to set money aside on a pretax basis for qualified unreimbursed medical or dependent care expenses. These accounts may exist either within a full flexible benefit plan or separately as a stand-alone plan. They can be funded by salary reduction arrangements, employer contributions, or both. Employees must determine how much they wish to contribute to the account in advance and forfeit any unused dollars at the end of the year.
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| Floaters |
A debt instrument with a variable interest rate tied to another interest rate.
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| Forfeit, forfeiture |
Plan assets surrendered by participants upon termination of employment before being fully vested in the plan. Forfeitures may be distributed to the other participants in the plan or used to offset employer contribution.
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| Free delivery |
Delivery of securities without any payment of funds.
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| Front-end load |
The fee applied to a mutual fund at the time of initial purchase, typically used to compensate a professional advisor for the service he or she provides to a client.
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| Frozen plan |
A qualified plan that continues to exist even though employer contributions have been discontinued and benefits are no longer accrued by participants.
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| Fundamental investment analysis |
Analysis of the balance sheet and income statements of companies in order to forecast their future stock price movements.
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| Funding policy |
An acknowledgement of the amount and timing of contributions required to fund benefit obligations.
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| Fund of funds |
Investment partnership that invests in a series of other funds. Portfolio will typically diversify across a variety of investment managers, investment strategies, and subcategories.
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| FUTA |
Federal Unemployment Tax Act—Authorizes the Internal Revenue Service to collect a Federal employer tax used to fund State Employment Security Agencies. Employers pay this tax annually by filing IRS Form 940. FUTA covers the costs of administering the Unemployment Insurance and Job Service programs in all States. In addition, FUTA pays one-half of the cost of extended unemployment benefits (during periods of high unemployment) and provides for a fund from which States may borrow, if necessary, to pay benefits.
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| Futures |
An agreement to buy or sell a specific amount of a commodity or financial instrument at a specific price on a specified future date.
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| G |
| General collateral |
Collateral (usually bonds) that satisfy the general requirements of a lender of cash in a repo transaction.
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| General partner |
Managing partner of a limited partnership, who is responsible for the operation of the limited partnership. The general partner's liability is unlimited.
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| Global macro investing |
Investment strategy that seeks to profit by making leveraged bets on anticipated price movements of global stock markets, interest rates, foreign exchange rates, and physical commodities.
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| Government debt |
Government or agency-issued interest bearing/discounted debt instrument that obligates the issuing corporation to pay the bondholder a specified sum of money, at specific intervals, and to repay the principal amount of the loan at maturity. U.S. government issues are backed by the full faith and credit of the U.S. government, which, if necessary, can print money to make payments.
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| Government plan |
A plan established for a state or local government, including a state, a political subdivision of a state, or any agency or instrumentality of either of them.
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| Graduated vesting |
A vesting schedule that provides for increasing levels of vesting with increasing length of service, until full vesting is achieved. see vesting
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| Grantor |
The owner of an estate who sets up a trust.
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| Growth (Growth-Oriented) |
An investment style that focuses on companies with above-average current and projected-earnings growth. Growth stocks tend to have relatively high earnings-growth rates and very low dividend yields. These firms trade at high valuation levels, meaning they usually have high price-to-book (P/B) and price-to-earnings (P/E) and price-to-sales (P/S) ratios. Because of their high prices and low yields, growth stocks tend to have less downside protection and more volatility than less expensive stocks.
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| Growth and Income Fund |
Are designed to pursue long-term growth as well as regular dividend income. Some growth and income funds are weighted more heavily towards growth, others towards income.
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| Growth stocks |
Stocks of companies that have shown or are expected to show rapid earnings and revenue growth. Growth stocks are riskier investments than most other stocks and usually make little or no dividend payments to shareholders.
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| H |
| Hardship |
At the employer’s option, a participant’s withdrawal of their plan contributions prior to retirement. Eligibility may be conditioned on the presence of financial hardship. These distributions are taxable as early distributions and are subject to a 10% penalty tax if the participant is under age 59 ½.
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| Highly compensated employee (HCE) |
An HCE, according to the Small Business Job Protection Act of 1996, is an employee who received more than $80,000 in compensation (indexed annually) during the last plan year OR is a 5% owner in the company.
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| High quality/Investment quality bonds |
A bond that is assigned a rating in the top four categories by commercial credit rating companies. S&P classifies investment-grade bonds as BBB or higher, and Moody's classifies investment grade bonds as Ba or higher.
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| High yield debt security |
A bond with a credit rating of BB (Standard & Poor's) or Ba (Moody's) or lower. Junk or high-yield bonds typically offer investor’s higher yields than bonds issued by more financially sound companies. Two agencies, Standard and Poor's and Moody's Investor Services, provide the rating systems for companies' credit.
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| Hot stock |
A stock much in demand by borrowers and thus hard to find.
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| Hour of service |
Each hour for which an employee is paid or entitled to payment for the performance of duties for the employer.
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| HR-10, HR10, Keogh |
A qualified retirement plan that covers a self-employed person (though other employees might also be covered). May include either a defined contribution or a defined benefit plan.
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| Hope scholarship credit |
An education tax credit that can be claimed only for qualified tuition and expenses that have been incurred at an eligible institution and are not covered by other assistance. Expenses not part of the degree program are excluded (room, board, books, insurance and activity fees). This credit is available only for the first two years of post-secondary education, during which the student is enrolled at least half time in a degree or certificate program. To receive the credit a taxpayer's adjusted gross income must not exceed a specified dollar amount.
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| Hurdle rate |
The minimum investment return a fund must exceed before a performance allocation/incentive fee can be taken.
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| I |
| Icing stock (aka holding stock) |
A term for reserving stock in anticipation of borrowing it.
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| Incidental (benefit) |
Any benefit of a retirement plan which is not specifically spelled out in the plan as a primary retirement benefit; also referred to as a fringe benefit. Special rules apply to these benefits to prevent discrimination with regard to incidental benefits.
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| Income |
Dividends, interest and/or short-term capital gains paid to a mutual fund's shareholders. Income is earned on a fund's investment portfolio less operating expenses.
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| Income Fund |
A mutual fund that often seeks to provide current income as its primary objective.
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| Index Fund |
A mutual fund that seeks to match the returns of a particular stock or bond market index (e.g. the S&P 500 Index).
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| Individually designed plan |
An individually designed (or custom-designed) retirement plan is tailored to meet particular needs. It is based on a legal document drafted specifically to conform with the employer specifications, unlike a prototype plan that only allows for customization within a fixed set of choices.
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| Individual retirement account (IRA) |
A tax-deferred retirement account into which an investor may contribute a portion of his/her earned income. Withdrawals before the investor reaches age 59 1/2 are generally subject to a 10% penalty tax imposed by the federal government. Types of IRAs include the traditional IRA and Roth IRA.
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| Inflation |
A general rise in the prices of goods and services.
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| Inflation risk |
The risk that the return on your investments will not keep pace with rising consumer prices.
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In-service withdrawal
|
A participant-initiated withdrawal from an employer-sponsored retirement plan while the participant is still employed by the company.
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| Initial Public Offering (IPO) |
A company's first sale of stock to the public. Securities offered in an IPO are generally those of young, small companies seeking outside equity capital. Investors purchasing stock in IPOs must be prepared to accept significant risks in exchange for the possibility of large gains.
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| Integration |
A feature of some qualified retirement plans that coordinates plan benefits or contributions with Social Security. Social Security benefits are progressive, i.e., they replace a greater proportion of pre-retirement earnings for lower earners than for higher earners. To compensate for this benefit tilt, plans may provide proportionately (as a percentage of compensation) higher pension benefits or contributions to higher-paid participants than to lower-paid participants, subject to certain limits. Since the Tax Reform Act of 1986 (TRA 86), integration is referred to as permitted disparity.
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| Interest rate risk |
The risk that the value of a fixed-income investment will drop as interest rates rise. That's because bond prices are inversely related to interest rates (if one goes up, the other goes down).
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| International Funds |
A mutual fund that primarily invests in securities issued from outside the U.S.
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| Intestate |
Dies without a will.
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| Interested parties |
Generally, all employees at the time the employer applies for a determination letter for the plan. The Internal Revenue Service requires that interested parties be notified when the application is made.
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| Investment adviser |
A person or organization that makes the day-to-day decisions regarding a portfolio's investments. Also called a portfolio manager.
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| Investment manager |
Individual who is responsible for the selection and allocation of investment securities.
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| Investment policy |
A formal statement outlining the broad investment objectives of a plan.
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| IRC, Code, Internal Revenue Code |
Internal Revenue Code of 1986, the basic Federal tax law.
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| IRS Form 5300 |
Form used to apply for an Employee Benefit Plan determination letter.
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| IRS Form 5307 |
Form filed with the IRS for employers who adopt a standard plan document of a service provider (also known as a master plan, prototype, regional prototype, or volume submitter plans) filing for a determination letter on the effect of a minor plan amendment.
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| IRS Form 5500 |
Form which must be filed with the IRS for each year in which a qualified plan has assets. IRS Form 5500 is filed for plans with 100 or more participants, IRS Form 5500 C or R for those plans with less than 100 participants, and IRS Form 5500 EZ for qualified plans with less than 2 participants. Plans that qualify for IRS Form 5500 C/R must file 5500 Form C for the first year, and every three years thereafter. In intervening years those plans may file IRS Form 5500-R.
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| J |
Joint and
survivor annuity |
An annuity covering two people and paying benefits until the last survivor dies. Also called a joint life annuity.
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| JTIC |
An acronym meaning Joint Tenants in Common. Used to describe mutual fund accounts that are owned by more than one person with certain survivorship rights. JTIC may appear on fund statements for these types of accounts.
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| JTWROS |
An acronym meaning Joint Tenants with Rights of Survivorship. Used to describe mutual fund accounts that are owned by more than one person whereby, upon the death of one account holder, ownership passes to the remaining account holder(s). JTWROS may appear on fund statements for these types of accounts.
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| Junk bonds |
A bond rated lower than Baa/BBB, also called a "high-yield" bond. Junk bonds are speculative compared with investment grade bonds.
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| K |
| Keogh plan |
A qualified defined contribution plan permitting self-employed individuals to contribute a portion of their earnings pre-tax to an individual account.
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| L |
| Large cap equity |
A stock with a large sized capitalization, or high total value. Capitalization is calculated by multiplying a stock's share price by the number of outstanding shares. A large-cap company generally has a market cap over $5 billion.
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| Large cap securities |
Equity securities with relatively large market capitalization, usually over $5 billion (shares outstanding times price per share).
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| LDC debt |
Debt securities issued by lesser-developed countries.
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| Leased employee |
An individual contracted to a leasing organization that provides services for the company.
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| Legal risk |
The risk that assets cannot be recovered in a particular jurisdiction in the event of the bankruptcy of an intermediary, or a similar event.
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| Letter of intent |
A promise by a shareholder to invest a specific amount of money for a specified period of time. This is used to reduce sales charges.
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| Lifetime learning credit |
An education tax credit that could reduce a person's federal income taxes by up to 20 percent of the first $5,000 out-of-pocket qualified tuition and fees paid for all eligible students in their family. Students are not required to take more than one course, and both undergraduate and graduate level qualified tuition fees from eligible institutions can be included. To receive the credit a taxpayer's adjusted gross income must not exceed a specified dollar amount.
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| LIFO |
Last-In—First Out. An accounting method for valuing the cost of goods sold that uses the cost of the last item in inventory first. For mutual funds, this applies to the last shares purchased.
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| Lipper & Company |
An independent mutual fund tracking and ranking company. Lipper fund rankings and averages are widely used in the financial industry.
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| Liquidity |
A high level of trading activity, allowing buying and selling with minimum price disturbance. Also, a market characterized by the ability to buy and sell with relative ease.
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| Liquidity risk |
A counterparty or his agent fails to pay what he owes on time or fails to deliver the assets he promised on time.
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| Living trust |
A trust that an individual establishes while they are alive, enabling the person to control the assets contributed to the trust. Also known as an inter vivos trust.
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| Loan |
If the plan allows, a participant may take a loan from the plan, using the vested account balance as collateral. These loans may allow a participant to repay the account with a stipulated interest rate, or repayments may be credited to the general assets of the plan. Qualified loans normally provide favorable interest rates for participants (prime + a percent or two), but have many restrictions regarding size and amortization which prevent the loan proceeds from being considered as current income or as an in-service withdrawal.
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Long biased
managers |
Investment managers with a long-directional market philosophy. Short selling and hedging are not the main components of their investment portfolio.
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| Long term capital gain |
A profit on the sale of a security or mutual fund share that has been held for more than one year.
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| Lump-sum distribution |
A single payment that represents an employee's interest in a qualified retirement plan. The payment must be prompted by retirement (or other separation from service), death, disability, or attaining age 59 1/2, and must be made within a single tax year to avoid the federal government's 10% penalty tax.
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| M |
| Make whole |
To compensate the lender of securities for any distributions or other entitlements the lender would have received had it not lent the securities.
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Management
company |
A firm that, for a management fee, invests pools of capital, for the purpose of fulfilling a sought-after investment objective.
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Manufactured
dividends |
Payments made by the borrower to the lender of securities in lieu of actual dividends the lender would have received had it not lent the stock.
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| Margin |
The ability to borrow a portion of the purchase price of securities from your broker or to borrow against eligible securities you own to purchase other securities, cover checks written against the account, etc., up to a specified limit.
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| Market capitalization |
A determination of a company’s value, calculated by multiplying the total number of company stock shares outstanding by the price per share. Also called capitalization.
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| Market neutral investing |
Investing in financial markets through a strategy that will result in an investment portfolio not correlated to overall market movements and insulated from systematic market risk.
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| Market risk |
The possibility that stock or bond prices overall will decline over short or even extended periods. Stock and bond markets tend to move in cycles, with periods of rising prices and periods of falling prices.
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| Market timing |
Attempting to only invest when the market has bottomed out (or selling when the market has peaked) in order to achieve the maximum investment gain.
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| Marking to market |
In securities lending, marking to market is the practice of periodically repricing the securities on loan against the value of the collateral.
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| Market value |
For a mutual fund, its market value is equal to its net asset value per share (NAV).
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| Master plan |
A retirement plan sponsored by a financial institution such as an insurance company, bank, mutual fund, or stock brokerage firm, that may be adopted by an employer by executing ("adopting") a participation agreement.
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| Maturity |
The date by which an issuer promises to repay the bond's face value.
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Medium cap
securities |
Equity securities with a middle-level stock market capitalization. Mid-cap stocks will typically have between $1 billion and $5 billion in total market capitalization (shares outstanding times price per share).
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| Mid cap equity |
A stock with a middle-sized capitalization, or total value. Capitalization is calculated by multiplying a stock's share price by the number of outstanding shares. A mid-cap company generally may have a market cap between $500 million and $5 billion.
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Minimum account
size |
The minimum initial investment amount an investor must allocate in order to enlist the services of an investment manager, via a separate account, or a limited partnership interest.
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| Minimum additional investment |
Minimum incremental capital allocation allowed to an existing investor.
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| Minimum benefit |
Under a top-heavy defined benefit plan, the annual requirement benefit of a non-key employee must be not less than 3% of compensation.
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| Minimum coverage |
Minimum number of employees that must be covered by a plan before it can be tax-qualified. Plan must satisfy either the ratio percentage test or the average benefit test.
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| Minimum funding |
Minimum amount that must be contributed by an employer that has a defined benefit, money purchase, or target benefit pension plan. If the employer fails to meet these minimum standards, in the absence of a waiver from the IRS, an excise tax will be imposed on the amount of the deficiency.
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| Minimum participation |
Must be met by employer in order for the plan to be qualified; plan must benefit at least the lesser of (1) 50 employees; or (2) 40% of all employees. Minimum participation requirements cannot be satisfied by combining plans of an employer.
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| Money manager |
A portfolio/investment manager, the person ultimately responsible for a securities portfolio.
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| Money market fund |
A mutual fund that invests only in short-term securities, such as banker's acceptances, commercial paper, repurchase agreements, and government bills. Money market funds strive to maintain a $1.00 per share net asset value (NAV), although this is not guaranteed. These funds are not federally insured, even if purchased through a bank or other financial institution.
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| Moody's Investors Service |
An independent security and bond-rating agency.
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| Morningstar, Inc. |
An independent tracking and rating service for mutual fund and other investments. Among its products, Morningstar ranks funds and annuities, and issues star ratings (one to five stars) that are commonly used as a snapshot overview of an investment based on its risk-adjusted performance returns and other factors.
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| Mortality |
Rates based on life expectancy formulas used by defined benefit actuaries to determine funding requirements based on the formulas in the plan and the demographics of the plan participants.
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| Mortgage-backed security |
Securities in which mortgage pools are used as backing.
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| Mortgage-related securities |
Investment instruments backed by a pool of mortgage loans.
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| Multi-employer plan |
A pension plan to which more than one employer contributes, and which is maintained according to collective bargaining agreements.
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| Multiple employer plan |
A qualified retirement plan to which more than one employer contributes and that is not the subject of a collective bargaining agreement.
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| Multi strategy |
Investment philosophy allocating investment capital to a variety of investment strategies, although the fund is run by one management company.
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| Mutual fund |
A registered investment company that pools the money of many individuals and institutions and invests it on their behalf. Mutual funds can invest in a wide variety of investments, including stocks, bonds and money market instruments.
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| N |
| Named fiduciary |
The plan document must name one or more fiduciaries, giving them the authority to control and manage the operation of the plan. The named fiduciary must also be identified as a fiduciary by a procedure specified in the plan document.
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| NASDAQ |
National Association of Securities Dealers Automated Quotations. A computerized system that provides up-to-the-minute price quotations for securities traded over-the-counter as well as for many securities listed on the NYSE.
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| NAV |
Net asset value per share—The market value of a mutual fund's total assets, minus liabilities, divided by the number of shares outstanding. The value of a single share is called its share value or share price.
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| Net rate of return |
Percentage appreciation from the prior period, after accounting for all fees and expenses.
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| Net unrealized appreciation |
The difference between the market value and acquisition cost of a security.
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| New comparability |
A type of profit sharing plan where the employer’s workforce is divided up into two or more groups called "rate groups." The employer contributes a different amount for each group and the contributions are allocated pro rata within each group. Ultimately, this method of allocating plan contributions allows the employer to favor themselves and those selected employees that the owner wishes to contribute more into the plan for.
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| New issues |
Stock or bond offering being issued to the public for the first time. Also known as "hot issue."
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| New York Stock Exchange (NYSE) |
Founded in 1792, the NYSE is the oldest exchange in the U.S., and the largest. More than 2,000 common and preferred stocks are traded on the exchange. Also referred to as the Big Board or the Exchange.
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| No load fund |
A type of mutual fund that does not levy initial or back-end sales charge.
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| Nondeductible |
Unable to be deducted for tax purposes; nondeductible contributions are defined as the sum of (1) amounts contributed by an employer to a qualified retirement plan for a taxable year in excess of the amount allowable as a deduction for that taxable year; and (2) the unapplied amounts from the preceding taxable year.
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| Non-directional |
Investment strategy with absolute return objectives, irrespective of market movements.
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| Non-discrimination |
A retirement plan is a qualified plan only if the contributions or benefits provided under the plan do not discriminate in favor of highly compensated employees. Three requirements must be met: (1) contributions or benefits provided in the plan must be nondiscriminatory in amount; (2) benefits, rights, and features provided under the plan must be available to participants in a nondiscriminatory manner; and (3) the effect of plan amendments and of plan terminations must be nondiscriminatory.
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| Non-discrimination testing |
In the 401(k), employee contributions for HCEs, as a group, are limited by the average employee contributions of NHCEs. The participation of the NHCEs determines the degree to which the HCEs can participate in the plan.
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| Non-diversified fund |
A mutual fund that concentrates its holdings on a limited number of securities, or that focus on a particular sector of the market (e.g. technology stocks). Non-diversified funds are generally riskier than more diversified funds.
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| Non-elective contributions |
An employer contribution that cannot be withdrawn or paid to the employee in cash. This contribution is neither a matching contribution or an elective contribution.
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Non-forfeitable
benefits |
Benefits that cannot be lost by a participant—"vested" benefits.
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| Non-fundamental policy |
Non-fundamental policies are policies related to a mutual fund that may be changed by its Trustees without shareholder approval. In contrast, fundamental policies can only be changed by a shareholder vote.
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Non-highly compensated
employee (NHCE) |
This group of employees is determined on the basis of compensation or ownership interest.
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| Non-periodic distributions |
Most non-periodic distributions fall into three main categories: lump sum distributions, eligible rollovers, and loans from retirement plans. Non-periodic distributions normally require withholding tax unless the distribution is transferred by a direct rollover to an eligible retirement plan that permits the acceptance of rollover distributions.
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| Nonqualified plan |
A retirement plan that does not meet the IRS requirements for favorable tax treatment.
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| Nonresident alien |
Non-U.S. citizen who resides outside the United States; in some cases, inclusion of nonresident aliens in a qualified plan can cause a plan to lose its tax-qualified status.
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| Non-U.S. debt securities |
Debt instruments that are issued from countries outside of the United States.
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| Non-U.S. equity securities |
Equities that are issued from countries outside of the United States.
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| Normal retirement age |
The age at which a participant in Social Security or a private pension plan is eligible for full retirement benefits.
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| Notice to interested parties |
Notice given to all parties in interest regarding legal or administrative issues about which all parties in interest are required by the IRS and the Department of Labor to have disclosure.
|
| Notification letter |
IRS option letter which alerts retirement plans, plan sponsors, and plan administrators of potential issues that might cause a plan to lose its tax-qualified status.
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| O |
| Officer (as used in HCE definition) |
An administrative executive who is in regular and continued service, excluding those employed for a special and single transaction or those with only nominal administrative duties.
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| Old Age, Survivors, and Disability Insurance (OASDI) |
Payroll tax equal to a set percentage of wages paid to employees. The OASDI tax rate provides for permitted disparity in a defined contribution plan and a Simplified Employee Pension (SEP).
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| Operational risk |
A breakdown in the clearing and settlement system in a market that precipitates a credit, liquidity, or regulatory system.
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| Opinion letter |
Interpretive letter issued by the Department of Labor that addresses specific issues and clarifies Department of Labor guidelines.
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| Opportunistic |
Investment strategy that seeks to profit from pricing discrepancies resulting from corporate "event" transactions, such as mergers & acquisitions, spin-offs, bankruptcies, or recapitalizations. Also known as "event driven."
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| Optional forms of benefit |
Distribution alternative that is available under a qualified retirement plan. Variances in optional forms of benefit may result from differences in payment schedule, timing, commencement, medium of distribution, election rights, or the portion of the benefit to which the distribution alternative applies.
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| Options |
A feature that gives a security owner the right, but not the obligation, to buy or sell an asset at a set price, on or before a given date. Buyers of call options anticipate that a stock will be worth more than the price set by the option, plus the price they pay for the option itself. On the other hand, buyers of put options bet that the stock's price will drop below the price set by the option.
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| Ordinary income |
Income that is not derived from interest, investment, royalties, rents, etc. (also referred to as earned income), used as a factor in multiple tax calculations regarding the taxation of benefits and the deduction of contributions.
|
| Outstanding shares (liquidity) |
The number of shares a security has in the marketplace. In terms of stocks, the number of outstanding shares can help to determine its liquidity. A stock with a large number of outstanding shares may be deemed to be highly liquid, whereas a stock with a relatively few number of outstanding shares may be viewed as being illiquid.
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| Over-the-Counter (OTC) market |
The market for securities that are not listed on a stock or bond exchange. The OTC market is a decentralized market, as opposed to an exchange market, such as the New York Stock Exchange.
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| Owner-employee |
A sole proprietor or a partner who owns more than 20% of either the capital interest or the profits interest in a partnership.
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| P |
| Pairs trading |
Non-directional relative value investment strategy that seeks to identify two companies with similar characteristics whose equity securities are currently trading at a price relationship that is out of their historical trading range. Investment strategy will entail buying the undervalued security, while short-selling the overvalued security.
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| 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.
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| Participant |
An employee who meets the participation requirements for the plan and who is enrolled in the plan.
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| Participation |
Taking part in a retirement plan. Most plans have participation requirements that specify which employees are eligible to participate in the plan.
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| Party in interest |
An ERISA-specified individual—such as an administrator, officer, fiduciary, trustee, custodian, or counsel—who is prohibited from making certain transactions involving a retirement plan. A trustee, for example, would be prohibited from using an IRA as collateral for a loan.
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| Passive management |
A low-cost investment strategy that seeks to match, rather than out perform, the return and risk characteristics of an index, by holding all securities that make up the index or a statistically representative sample of the index. Also know as indexing.
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| Pension Benefit Guaranty Corporation (PBGC) |
A federal agency established by Title IV of ERISA for the insurance of defined benefit pension plans. The PBGC provides payment of pension benefits if a plan terminates and is unable to cover all required benefits.
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| Pension plan |
An arrangement under which an employer—and sometimes the employee—makes payments toward retirement, disability, or death benefits for employees who meet certain criteria. Types of pension plans include defined benefit plans, defined contribution plans, employee stock ownership plans, money purchase plans, profit-sharing plans, stock bonus plans, thrift plans, and target benefit plans.
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| Periodic distributions |
Recurring payments such as an annuity that qualify for elective withholding but do not fall under the automatic withholding rules.
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| Permanent |
Qualified plans must be established with the intent of being permanent. Plans can be amended or terminated, but the plan sponsor must prove to the IRS that the retirement plan is for the long-term benefit of its participants.
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| Plan |
Retirement vehicle by which an employer intends to provide long-term benefits for its employees. Plans can be either defined benefit plans or defined contribution plans. In addition, plans either can be qualified or nonqualified for tax purposes.
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| Plan assets |
Assets held by the retirement plan for the benefit of the participants. Plan assets are to be segregated from the employer's property and held in trust be a trustee or investment manager who has the fiduciary duties of (1) composing the portfolio with regard to diversification; (2) structuring the assets so that the liquidity and current return of the portfolio are relative to the anticipated cash flow requirements of the plan; and (3) managing the assets so that the projected return of the portfolio is relative to the funding objectives of the plan.
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| Plan document |
The document that specifies the plan or instrument, including all amendments.
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| Plan year |
The calendar, policy or fiscal year for which plan records are maintained.
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| Political risk |
The risk that political and/or governmental actions or events may unfavorably influence the value of an investment.
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| Portfolio turnover |
The number of times an average portfolio security is replaced during an accounting period, usually a year.
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| Preferred stock |
A type of stock that has characteristics of both common stock and fixed income securities. Preferred stock gives the holder ownership in a corporation and a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most preferred stocks provide a fixed dividend that is paid prior to the common stock. Preferred stock does not usually carry voting rights.
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| Premium |
As in "trading at premium" and "special premium," this term connotes a higher price relative to the usual price of the same instrument or to the price of a related instrument.
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| Preretirement survivor annuity |
Provides for the medical care insurance for dependents on the date of an employee's death to remain in force, usually without payment of premium, for some specified period ranging from six months to two years from the date of the employee's death. This survivor coverage, designed to protect surviving dependents from the sudden termination of benefits as a result of the employee's death, has been replaced and broadened by the requirements prescribed by COBRA.
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| Preservation of capital |
A mutual fund objective that calls for the manager to invest in such a way to seek to maintain a constant or fairly constant share price. While a mutual fund may seek preservation of capital, there can be no guarantee that this will occur, even with money market funds.
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| Price/earnings (P/E) ratio |
The share price of a stock divided by its per-share earnings over the past year.
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| Prime broker |
The principal brokerage firm an investment fund does business with.
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| Prime brokerage |
The provision by securities houses of financing, clearing, securities lending, and other services to smaller broker/dealers or hedge funds.
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| Principal |
Major party to a transaction, acting as either a buyer or seller (or lender or borrower), acting on its own account and at its own risk.
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| Profit-sharing plan |
Company-sponsored plan funded only by company contributions. Company contributions may be determined by a fixed formula related to the employer’s profits, or may be at the discretion of the board of directors.
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Prohibited
transaction |
Activities regarding treatment of plan assets by fiduciaries that are prohibited by ERISA. This includes transactions with a party-in-interest, including, sale, exchange, lease, or loan of plan securities or other properties. Any treatment of plan assets by the fiduciary that is not consistent with the best interests of the plan participants is a prohibited transaction.
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| Prospectus |
The official document that describes a mutual fund to investors. The prospectus contains information required by the SEC, such as investment objectives and policies, risks, services and fees. A fund's prospectus should always be read carefully before investing.
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| Prototype plan |
A qualified retirement plan sponsored by a financial institution. It may be adopted by executing a written agreement. Also called a master pension plan, a prototype is generally more flexible than the IRS Form 5305 or 5305-A and may have special features added. Also refers to a document stating the general provisions of a qualified retirement plan.
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| Prudent man |
Requires that a plan fiduciary use the "care, skill, and diligence" that would be used by a reasonably prudent person familiar with "such matters." While essentially an extension of the common-law requirement of good faith in handling other people's money, it creates a "prudent expert" test that places an additional burden on the plan sponsor—to know what a person in this position of responsibility should know, rather than a reliance on the knowledge level of the general populace.
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| PS 58 |
The 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.
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| Public Offering Price (POP) |
The price of a new issue of security at the time that the issue is offered to the public. For a mutual fund, the POP is its net asset value, plus any initial sales charge (if applicable).
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| Q |
| Qualified |
A plan that is entitled to the tax benefits and protections of the Employee Retirement Income Security Act (ERISA). In order to be "qualified", a plan must: (1) have a written plan document; (2) be permanent; (3) communicate the provisions of the plan to eligible employees; (4) be established and operated for the exclusive benefit of plan participants or their beneficiaries; (5) have minimum participation (eligibility) standards; (6) be nondiscriminatory in coverage and contributions/benefits; and (7) have minimum vesting standards. For the plan assets to be eligible for tax benefits, the Internal Revenue Code (IRC) also requires that the plan: (1) meet minimum participation, vesting and funding standards, and plan assets must be legally segregated from other assets of the sponsor; (2) must not benefit only a limited number of favored employees but must benefit employees in general in such a way as to be deemed nondiscriminatory by the IRS; and (3) must provide definitely determinable benefits.
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| Qualified distribution |
A distribution from any tax-favored savings vehicle that allows the proceeds of the distribution to retain all or part of their tax-qualified status.
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Qualified Domestic Relations Order
(QDRO) |
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.
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| Qualified Joint and Survivor Annuity (QJSA) |
An annuity with payments continuing to the surviving spouse after the participant’s death, equal to at least 50% of the participant’s benefit.
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| Qualified Matching Contribution (QMAC) |
An employer may make qualified matching contributions to the plan. The amount of such qualified matching contributions shall be calculated by reference to the participant's elective deferrals as specified in the plan document. Qualified matching contributions are non-forfeitable when made, and distributable only as defined in the plan document.
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| Qualified Non-elective Employer Contribution (QNEC) |
An employer may make special qualified non-elective contributions on behalf of non-highly compensated employees sufficient to satisfy either the ADP test or the ACP test, or both, pursuant to regulations under the Code. Allocations of qualified non-elective contributions to each non-highly compensated employee's account shall be made in accordance with the plan document.
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| Qualified plans |
Retirement plans that conform to the rules of IRC Section 401, including defined benefit and defined contribution plans, such as 401(k), profit sharing, and money purchase plans.
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| Qualified PreRetirement Survivor Annuity (QPSA) |
An immediate non-cashable and nontransferable annuity purchased from a legal reserve life insurance company providing approximately equal monthly installments for the life of the participant's surviving spouse, if any.
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| Qualified Separate Line Of Business (QSLOB) |
(Separate line of business—lines of business organized and operated separately from one another) To be a qualified separate line of business, the following requirements must be satisfied: (1) each separate line of business must have at least 50 employees; (2) the employer must notify the IRS that it treats itself as operating qualified separate line of business; and (3) the line must satisfy administrative scrutiny.
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| Qualifying employer securities |
Stock, marketable obligations, or certain publicly traded partnership interests issued by an employer of employees covered by a plan of the employer or an affiliate.
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| R |
| Rate of return |
Percentage appreciation in market value for an investment security or security portfolio.
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| Rating services |
Independent organizations, such as Morningstar, Lipper & Company and Value Line, which rate mutual funds and other securities, based on certain criteria (such as risk and reward measures).
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| Real Estate Investment Trusts (REITs) |
REITs invest in real estate or loans secured by real estate and issue shares in those investments. Real estate mutual funds generally invest the majority of their assets in REITs and other related securities.
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| Rebate |
The interest rate that a securities lender pays the borrower on cash collateral, normally below the market rate to reflect the lending fee.
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| Recall |
Demand by the lender for a return of securities from the borrower.
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| Record date |
The date used to determine who is eligible to receive a company or fund's next distribution of dividends or capital gains.
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| Redemption |
The return of an investor's principal in a security. Bond redemption can occur at or before maturity; mutual fund shares are redeemed at net asset value when an investor's holdings are liquidated.
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| Redemption fee |
A fee charged by some mutual funds when an investor sells shares within a short period of time.
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| Redemption notice period |
Required notification period of an intended redemption request. Notification is usually required in writing.
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| Regulatory risk |
The risk that the regulatory or tax status of an asset changes, causing loss.
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| Reinvestment of dividends/capital gains |
A feature offered by mutual fund companies that allow shareholders to take the dividends and/or capital gain distributions paid by their fund and to reinvestment them in the same (or a different fund) to purchase additional shares. These subsequent purchases are generally made at net asset value. Even though a shareholder may reinvest their distributions, they will still incur taxes on the distribution they received.
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| Relative value |
Non-directional market neutral investment strategy that seeks to exploit pricing discrepancies between a pair of related securities. Strategy will entail buying the undervalued security and short selling the overvalued security.
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Repurchase
agreement |
Also called a repo, this is a transaction between a dealer and an investor whereby the investor sells a security to the dealer with an agreement to repurchase the security on a future date at a lower price that will result in a predetermined interest cost to the dealer. This is considered to be a collateralized loan of money, the securities representing the collateral.
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| Required beginning date |
Generally refers to the date on which distributions from a plan (or IRA) must begin—the first day of April of the calendar year following the calendar year in which the participant attains age 70 1/2.
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| Required minimum distribution, 401(a)(9) |
The minimum amount that the IRS requires must be withdrawn each year from all tax-advantaged retirement plans starting in the calendar year following the year in which the plan holder reaches age 70-1/2. Roth IRAs are excluded from this rule.
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Retirement Equity
Act of 1984 (REA) |
The major changes of this legislation included an expansion of the survivor-benefit requirements, allowed the assignment/alienation of benefits in a divorce proceeding (via a QDRO), and reduced the age requirement for plan participation.
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Revenue procedure
(rev proc) |
A revenue procedure issued by the IRS, similar to a revenue ruling, but dealing with procedural matters, particularly those that affect dealings with the IRS.
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Revenue ruling
(rev ruling) |
A ruling issued by the Internal Revenue Service expressing its view on the tax results of a specific problem/situation.
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Reverse cash and
carry trade |
A strategy in which the arbitrage trader buys the futures contract and sells the cash instrument short in order to profit from a price discrepancy.
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| Reverse index arbitrage |
A reverse cash and carry trade carried out with stock index futures.
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| Reversion of contribution |
The return of an employer contribution made based on a mistake of fact, or which would impact the plan's qualification or the contribution's deductibility.
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| Rights of Accumulation (ROA) |
A way for a mutual fund shareholder to qualify for a reduced sales charge. With ROA, the shareholder adds the value of shares already owned in his or her accounts, and uses that amount to receive a discount on purchases of new shares.
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| Risk arbitrage |
Relative value investment strategy that seeks to exploit pricing discrepancies in the equity securities of two companies involved in a merger-related transaction. Strategy will entail the purchase of a security of the company being acquired, along with a simultaneous sale in the acquiring company.
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| Risk tolerance |
The amount of risk an investor is willing to assume in order to meet a specific goal.
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| Rollover |
The action of moving plan assets from one qualified plan to another or to an IRA within sixty days of distributions, while retaining the tax benefits of a qualified plan.
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| Roth IRA |
A nondeductible IRA introduced by the Taxpayer Relief Act of 1997. Distributions from a Roth IRA are tax-free if they meet certain requirements (income, time since the Roth IRA was established, age of the Roth IRA owner, etc.).
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| R squared |
A measure of how much of a fund's past returns can be explained by the returns from the market overall.
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| Rule of parity |
Enables a plan to forfeit any nonvested accrued benefit upon occurrence of five consecutive one-year breaks in service; the entire prebreak account balance will, therefore, be forfeited under that rule.
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| S |
| S&P 500 Composite Index |
An unmanaged index of 500 widely held common stocks, which is used as a gauge to measure the general performance of the stock market. Typically referred to as the S&P 500.
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| Safe Harbor 401(k) plan |
A plan exempt from non-discrimination testing of elective and/or matching contributions in exchange for providing certain minimum levels of matching or non-elective contributions.
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Savings Incentive Match Plan for Employees
(SIMPLE) |
A simplified retirement plan, structured either as a 401(k) or as an IRA, that allows employees to make elective contributions, while requiring certain matching or nonelective contributions from the sponsoring employer. The specified rate of employer contributions obviates the requirement to perform the ADP/ACP nondiscrimination tests.
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| S Corporation |
A corporation whose shareholders have elected to be taxed like a partnership (rather than a regular, "C", corporation), with profits/losses passing directly through to shareholders, rather than at the corporate level.
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| Section 125 (of IRC) |
Used in a cafeteria plan to determine qualifications for a qualified retirement plan.
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Section 401(a)(26)
(of IRC) |
Establishes the minimum coverage requirements for a participant in a qualified retirement plan.
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Section 404(c)
(of ERISA) |
Permits participants to make independent choices from investment alternatives as to how they wish funds to be invested in a self-directed plan.
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| Section 412 (of IRC) |
Ensures that minimum funding standards have been established for ERISA plans, and that any party with discretionary power or authority regarding the plan or plan assets must be bonded.
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| Section 414 (compensation) |
Provides rules for defining compensation for purposes of applying any provisions that specifically refer to section 414.
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| Section 415 |
Sets out the maximum contribution and benefit limitations of the Internal Revenue Code for qualified plans.
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| Sector |
Used to characterize a group of securities that are similar with respect to particular industry (e.g. technology) maturity, type, or rating.
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| Sector Fund |
Invest in the stock of one specific sector of the economy, such as healthcare, chemicals, or retailing. These funds tend to be more volatile than funds holding a diversified portfolio of stocks in many industries.
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| Securities and Exchange Commission (SEC) |
The primary U.S. government agency responsible for the regulation of the day-to-day operations and disclosure obligations of mutual funds.
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| Securities washing |
Transiting a lender's securities through an intermediary's account with a foreign settlement bank before their delivery to the borrower. This preserves the anonymity of the counter parties on either side of the transaction.
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| Self-directed |
An account where the individual participant has elected to make all investment decisions. Generally speaking, this terminology applies to any 401(k)-type arrangement where participants direct their account investments. More specifically, "self-directed brokerage accounts" are available in a growing number of 401(k) plans where a participant actually places trades directly through a broker designated by the program, permitting investment in a wider variety of securities, including individual stocks.
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| Self-employed |
An individual who has earned income for the taxable year, or an individual who would have had earned income but for the fact that the trade or business had no net profits for the taxable year. The self-employed individuals Tax Retirement Act of 1962 established the framework by which unincorporated small business owners and partners could set up and participate in tax-qualified pension plans popularly referred to as HR-10 (for an early version of the bill) or Keogh plans (for U.S. Rep. Eugene Keogh, sponsor of the bill). In order to be eligible to establish a Keogh plan, an unincorporated sole proprietorship or partnership must be engaged in a business with a profit motive. Both owners/partners and their self-employed common-law employees are eligible to participate. For Keogh plan purposes, a common-law employee is one for whom an employer has the right to control and direct the results of the work and how it is done.
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| Separation from service |
A person is separated from service when he does not receive compensation from his former employer. This typically occurs in termination or a willful separation of service.
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| Set-off |
A netting of obligations between the borrower and the lender in the case of borrower default.
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| Settlement date |
Date by which an executed trade must be cleared. Each market has its own conventions as to the period between trade date and settlement date.
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| Settlement period |
The period between trade date and settlement date.
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| Share class |
These classes represent ownership in the same fund, but charge different fees. This can enable shareholders to choose the type of fee structure that best suit their particular needs. Common share classes are Class A, Class B and Class C shares.
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| Sharpe ratio |
Numerical value indicating risk-adjusted performance. Calculated by subtracting the risk-free rate of return from average return, divided by standard deviation of returns.
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| Short hedge |
A hedged short position. Generally, this refers to either a short position in a security hedged by a long derivative position, or a short position in a derivative hedged by a long position in the underlying security.
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| Short interest |
A figure representing the total amount of shares that have been sold short and have not yet been repurchased to close out short positions.
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| Short seller |
One who sells a security without owning it, with an obligation to buy the security at a later time, and repay the security creditor who had lent it for sale. Profits will result if the investor is able to buy it back later at a lower price.
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| Signature guarantee |
A verification of a signature that is typically provided by a bank, brokerage company firm or other types of financial intermediaries. A signature guarantee cannot be obtained by a notary public.
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| Simplified Employee Pension (SEP) |
An individual retirement account arrangement for covered employees, subject to specific rules on contribution and eligibility. First authorized in 1979, SEPs simplify the administration and reduce the paperwork associated with many other types of pension plans. For this reason, they are especially attractive to smaller employers.
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| Short term capital gain |
Net gains on assets sold less than 12 months after their purchase.
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| Slots available |
Refers to the number of partnership interests that are still available within an investment vehicle, as limited by the 1940 Investment Advisers Act.
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| Small cap |
Securities in which the parent company's total stock market capitalization is less than $1 billion.
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| Small-cap equity fund |
A mutual fund that invests its assets primarily in small-cap stocks.
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| Social Security Integration |
A plan wherein the benefits are integrated with the Social Security benefit. Under regular corporate plans, the regulations define the percentages applicable to the various benefits. Under a self-employed program, the only offset permissible is the amount of the Social Security tax paid for the employee. If more than one plan is instituted for the same company, only one program may be integrated.
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| Soft commodities |
Tropical commodities such as coffee, sugar, and cocoa. In a broader sense may also include grains, oilseeds, cotton, and orange juice. This category usually excludes metals, financial futures, and livestock.
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| Sole proprietor |
The owner of 100% of an unincorporated business.
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| Sovereign debt |
Fixed income security guaranteed by a foreign government.
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| Special collateral |
Used in contrast to 'general collateral' to refer to specific securities required in a borrower's trading strategy.
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| Special situations investing |
Investment strategy that seeks to profit from pricing discrepancies resulting from corporate "event" transactions, such as mergers & acquisitions, spin-offs, bankruptcies, or recapitalizations. Also known as "event driven."
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| Spin-off |
A form of a corporate divestiture that results in a subsidiary or division becoming an independent company.
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| Spousal consent |
A spouse's written consent for the participant-spouse to designate some other beneficiary or joint beneficiary arrangement.
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| Standard & Poor's Ratings |
Standard & Poor's rating service that indicates the amount of risk involved with specific securities.
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| Standard deviation |
Statistical measure of the degree to which an individual value in the probability distribution tends to vary from the mean of the distribution.
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| Statement Of Additional Information (SAI) |
The supplementary document to a prospectus that contains more detailed information about a mutual fund; also known as "Part B" of the prospectus.
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| Statistical arbitrage |
Market neutral relative value investment strategy that involves the utilization of a quantitatively based investment methodology that identifies securities or groups of securities that are currently trading at prices out of their historical range. Will involve longing an undervalued security and short selling an overvalued security.
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| Stock |
An investment that represents part ownership of a company's assets and earnings. There are two different types of stock: common and preferred. Common stocks provide voting rights, but no guarantee of dividend payments. Preferred stocks provide no voting rights, but offer a set, guaranteed dividend payment. Preferred stock also has prior claim to company assets over common stock in the case of a bankruptcy.
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| Stock bonus |
A defined contribution plan similar to a profit-sharing plan, except that the employer's contributions do not have to be made out of profits and benefit payments generally must be made in employer stock.
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| Strategic asset allocation |
A long-term allocation of assets based on the plan's objectives.
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| Street name |
Phrase describing securities held in the name of a broker or other nominee instead of the actual owner. Securities lenders often leave stock in street name (except before record date) so they can readily lend it out again, thus avoiding the delay and the expense of registration.
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| Sub-advisor |
A term used to describe an investment manager hired by an Investment Advisor to oversee the day-to-day portfolio management of a mutual fund. The sub-advisor may or may not be affiliated with the Investment Advisor.
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| Subscription period |
The period during which shareholders must subscribe for their rights in a rights offering.
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| Summary annual report |
Must be distributed to plan participants within the later of nine months after the close of the plan year or two months after the end of an IRS-granted extension to file the IRS Form 5500 or 5500-C/R. It must contain certain financial and other information in the manner set forth in Labor Reg. Section 2520.104b-10(c)(3).
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| Summary of Material Modifications |
A document that summarizes significant changes to a plan. It must be furnished to participants and beneficiaries, as well as with the Department of Labor. [ERISA Sec. 101(a) and 101(b)]
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| Summary Plan Description (SPD) |
A simplified but comprehensive description of the plan provisions and ERISA-related material that must be provided to participants and beneficiaries, as well as the Department of Labor. Courts have held that, when the SPD and plan document are in conflict, the SPD controls. The SPD must be revised every five years if there are material modifications—and every 10 years even if not. New plans are to have an SPD available 120 days after the plan's effective date (or date of plan adoption, whichever is later). New participants should receive an SPD within 90 days of eligibility.
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| Survivor annuity |
Part of "joint and survivor annuity," an annuity for the life of a participant with a survivor annuity for the life of the participant's spouse which is not less than one-half, nor greater than the amount of the annuity payable during the joint lives of the participant and the participant's spouse. The joint and survivor annuity will be the amount of benefit which can be purchased with the participant's vested interest in the plan.
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Suspension
(of benefits) |
Benefits are no longer received. This can occur in a variety of situations including death.
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| Systematic withdrawal plan |
A program offered by a mutual fund company that allows the shareholder to automatically withdraw a set amount of money (or shares) at regular time intervals (e.g. monthly or quarterly).
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| Systemic risk |
The risk that a failed payment or delivery has knock-down effects throughout the transaction chain, plunging the entire financial system into crisis.
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| T |
| 12b-1 fees |
The percent of a mutual fund's assets used to defray marketing and distribution expenses. The amount of the fee (if applicable) can be found in a fund's prospectus.
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| Target benefit |
A "hybrid" plan combining some of the characteristics of a defined benefit plan and a money purchase plan. A defined benefit formula is used to determine each employee's targeted retirement benefit. An acceptable actuarial cost method, along with acceptable assumptions, is used to determine a contribution for each employee assumed to be sufficient to provide the targeted benefit. At this point, the plan becomes defined contribution in operation, with individual accounts established for employees and all investment gains and losses are credited to their accounts. Ultimately, retirement benefits will be determined by actual account balances. For most tax law purposes, including Section 415 limits, a target benefit plan is treated as a defined contribution plan. Also, it is not subject to the plan termination insurance provisions of ERISA.
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| Taxable wage base |
With respect to any year, the maximum amount of earnings which may be considered wages under Section 3121(a)(1) of the internal Revenue Code.
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| Tax-deferred annuity, tax-sheltered annuity |
Also known as 403(b) annuities. This is the mechanism for employees of certain not-for-profit organizations to elect to defer compensation in a qualified retirement plan.
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| Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) |
This legislation lowered limits on contributions and benefits for corporate plans; outlined situations where certain loans from a plan could be treated as distributions; and added "top-heavy" plan requirements. It also introduced the notion of voluntary withholding of taxes on distributions from qualified plans.
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| Tax-exempt funds |
A mutual fund that invests primarily in municipal securities to provide income free from federal income taxes. State taxes may still be assessed on such funds.
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| Tax-exempt securities |
A security sometimes called a municipal bond that is generally exempt from federal income taxes. Tax-exempt mutual funds invest their assets in these securities.
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| Taxpayer ID Number |
Your Social Security Number or other Tax Identification Number, which must be provided to a mutual fund company to avoid back-up withholding.
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| Termination |
A person who has been a participant, but whose employment has been terminated other than by death, total and permanent disability or retirement.
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| Term loan |
A securities loan for which a maturity has been agreed at the outset.
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| Third Party Administrator (TPA) |
Specialized plan administration firms that generally act as an extension of the plan sponsor's duties.
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| Time horizon |
The amount of time a person has until he or she needs to access their investments.
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| Timing the market/market timing |
Attempting to only invest when the market has bottomed out (or selling when the market has peaked) in order to achieve the maximum investment gain.
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| Top down investing |
An approach to investing in which an investor first looks at trends in the general economy, and next selects industries and then companies that should benefit from those trends.
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| Top hat |
Plans for highly compensated individuals and executives not covered by the PBGC.
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| Top-heavy |
A plan that primarily benefits key employees, generally when the value of accrued benefits for "key" employees is more than 60% of the value of total accrued benefits for the plan. If a plan is found to be top-heavy, special remedies must be applied, including:
- The benefit accrual for non-key employees under a defined benefit plan must be at least 2% of pay for up to 10 years.
- The contributions made for non-key employees under a defined contribution plan must be at least 3% of pay.
- The section 415 limits can be further reduced unless special conditions are met.
- Special and more rapid vesting requirements will apply.
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Top-paid group
(as used in HCE definition) |
Generally, the top 20% of employees who performed services for the employer during the applicable year, ranked according to the amount of "415 Compensation" received from the employer during such year.
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| Total return |
A measure of a fund's performance that encompasses all elements of return dividends, capital gain distributions and changes in net asset value. Total return is the change in value of an investment over a given period, assuming reinvestment of any dividends and capital gain distributions, expressed as a percentage of the initial investment.
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| Traditional IRA |
A term used to describe a regular Individual Retirement Account (IRA), as opposed to a Roth or Education IRA (now known as the Coverdell Education Savings Account).
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| Transfer |
The changing of an asset’s ownership.
|
| Transfer agent |
An individual or institution that a company appoints to oversee the transfer of securities. In the mutual fund industry, a transfer agent may also oversees the record keeping of shareholder accounts and distribute account statements.
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| Triparty |
A structure in which a third party, independent of both the lender and borrower, is appointed to monitor, control, and manage the collateral.
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| Trustee |
The individual/institution holding legal title to the trust property. The person or entity named in the trust document and any successors in interest with fiduciary responsibilities as named in the trust document.
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| Turnarounds |
Favorable reversal in the fortunes of a company, a market, or the economy at large. Turnaround specialists seek to exploit market pricing inefficiencies in securities of companies that might be on the verge of a turnaround situation.
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| Turnover |
For mutual funds, a measure of trading activity during the previous year, expressed as a percentage of the average total assets of the fund. For example, a turnover rate of 50% means that the value of trades represented one-half of the assets of the fund. Actively managed mutual funds typically have higher turnover rates that passively managed funds (sometimes referred to as index funds).
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| U |
| U.S. equity hedge |
Directional, U.S.-oriented investment philosophy that invests in U.S.-exchange-traded securities, on the long and short side. Short exposure is utilized to manage portfolio market risk.
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| U.S. Government Securities |
Debt instruments issued by the U.S. government. These issues are guaranteed by the government in terms of returning the principal amount and making dividend payments. On the other hand, mutual funds that invest in government securities are not insured, and may lose money.
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| Undervalued |
A stock price perceived to be too low or inexpensive, as indicated by a particular valuation method (e.g. its price-to-earnings ratio).
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| Unemployment Compensation Amendments of 1992 (UCA) |
Tax measures signed into law on July 3, 1992. A legislative "sneak attack" that extended unemployment benefits in an election year, paid for by introducing mandatory income tax withholding on certain plan distributions.
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| Unit Investment Trust (UIT) |
A SEC registered investment company that invests in a portfolio of securities on behalf of investors who share a common objective. Investors receive periodic interest and, upon maturity, redemption value. The UIT is not actively managed.
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| Unlisted security |
A security that is not listed on an organized exchange. Unlisted securities are instead traded in the Over The Counter (OTC) Market.
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| Unrealized gain/loss |
The amount of a gain or loss on a particular security that would occur (or be realized) if the security was sold.
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| Unrelated business taxable income, UBTI, UBIT |
Gross income derived by the IRC Section 501(a) trust from an unrelated trade or business regularly carried on by it, less the allowable deductions which are directly connected with the carrying on of such trade or business.
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| Unwind |
To 'unwind' a position in the securities or derivatives markets is to terminate it by selling (if it is a long position) or by buying in (covering) if it is a short position.
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| Usage fee |
The part of the lender's compensation that corresponds to the extent of the actual borrowing from its portfolio. Such a fee is usually coupled with a commitment fee in an exclusive arrangement with one borrower or sub-custodian bank.
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| V |
| Valuation |
Placing a value or worth on an asset. For alternative investment portfolios, valuation can be determined by the last market-traded price, or by general partner discretion in the case of illiquid securities, where there is no readily available market-pricing mechanism.
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| Value (Value-Oriented) |
A term used to describe stocks that are perceived to be priced too low, or as being inexpensive, as indicated by a particular valuation method (e.g. its price-to-earnings ratio). Value funds primarily invest in stocks the portfolio manager deems to be undervalued in the marketplace, with the anticipation that the price will rise when the market acknowledges their true worth.
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| Value line |
An independent firm that tracks and provides ratings for securities, including mutual funds.
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| Variable rate note |
A note that is payable on demand and bears interest tied to a money market rate.
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Vesting, vested,
vesting schedule |
Generally, the non-forfeitable portion of any account maintained on behalf of a participant. Upon satisfying the participation requirements, further conditions must be met for the participant to become entitled to receive a benefit—that is, to have a vested right to the benefits.
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| Voluntary/employee contribution |
A provision for voluntary employee contributions is an optional feature included in some thrift plans. This provision provides a means for the employee to make contributions to the plan on an "after-tax" basis, while allowing earnings on those contributions to accumulate on a tax-deferred basis. Voluntary employee contributions normally are accounted for separately.
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| W |
| W-2 compensation |
Compensation is defined as wages, as defined in Code Section 3401(a) and all other payments of compensation to an employee by the employer (in the course of the employer's trade or business) for which the employer is required to furnish the employee a written statement under Code Sections 704(d) and 5051(a)(3). Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Section 3401(a)(2). Compensation for any self-employed individual shall be equal to his earned income.
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| Warrants |
A security that allows the holder to purchase a proportionate amount of stock at a specified future date at a specified price, usually higher than the current market price. Warrants are traded as securities, whose price reflects the value of the underlying stock. Corporations often group together warrants with another class of security to enhance the marketability of the other class.
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| Wash sale |
The purchase and sale of a security, such as a mutual fund, which occur simultaneously or within a short period of time of each other. Wash sales occurring within 30 days of the original purchase do not qualify as a capital loss according to IRS rules.
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| Withholding |
The process of taking money out of a taxable distribution as a prepayment of income taxes due on the event.
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| X |
| There are no glossary words under this letter. |
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| Y |
| Yankee debt securities |
Foreign bonds denominated in U.S. dollars and issued in the United States by foreign banks and corporations.
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| Year of service (generally) |
The computation period of 12 consecutive months during which an employee has completed at least 1000 hours of service.
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| Yield |
A measure of net income (dividends and interest) earned by the securities in the fund's portfolio, less fund expenses, during a specified period. A fund's yield is expressed as a percentage of the maximum offering price per share on a specific date.
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| Z |
| There are no glossary words under this letter. |
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