Glossary

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Actual Contribution Percentage Test (ACP Test)

An annual test that measures whether employer matching contributions and employee contributions discriminate in favor of highly compensated employees

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Actual Deferral Percentage Test (ADP Test)

An annual test that measures whether employee salary deferrals (elective contributions) discriminate in favor of highly compensated employees.

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Actual Deferral Ratio

Ratio of employee's elective contributions to employee's compensation.

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Adoption Agreement

The document that conforms the Plan Document to reflect each individual company's your plan administration software plan.

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Alternate Payee

Any spouse, former spouse, child, or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all or a portion of the participant's benefit.

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Annual Additions

Amounts that are credited to a participant's account during the determination year, exclusive of interest, earnings, and rollovers. This includes employee and employer contributions plus forfeitures.

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Average Benefit Percentage Test

One of two tests necessary to determine whether a plan meets the average benefits test

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Average Benefit Test

One of two alternative tests used to determine whether a plan meets the minimum coverage requirements

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Beneficiary

The person(s) designated to receive the death benefit of a participant's account

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Break in Service

Sometimes an employee takes a leave of absence or terminates employment and later returns to the company. Such a break in service can have serious consequences for his or her 401k account if the break extends for a long enough time and the matching contributions are not fully vested. However, ERISA does not permit the accrued benefit (i.e., vested amounts of the employer's contribution) to be forfeited if there is a short break in service.

The rules governing the circumstances under which a plan is required to continue to credit a participant with service earned before a break in service if the participant later returns to employment are very technical. In general, they guarantee that an employee's service credit cannot be forfeited for absences shorter than 5 consecutive years. If an employee needs to take a leave of absence, he or she should be advised of your company's plan rules so that he or she does not inadvertently and unnecessarily lose accrued benefits.

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Cash or Deferred Arrangement (CODA)

The provision in a 401k plan that permits eligible employees to defer a certain portion of their pre-tax compensation into a plan.

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Determination Date

For existing plans, the last day of the preceding plan year; for new plans, the last day of the first plan year. Since your plan administration software plans are on a calendar year, the determination date is December 31.

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Determination Letter

A letter issued by the IRS pursuant to a request from the employer sponsor of a qualified plan indicating whether the employer's qualified plan meets all of the qualification requirements at the time of the request (see also Opinion Letter).

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Determination Year

For existing plans, the most recent entire plan year; for new plans, the first plan year.

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Discretionary Employer Contributions

Any employer contributions to a 401k plan that are not mandated by the terms of the plan (see also Profit Sharing).

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Discrimination

The undue favoring, in plan provisions or operations, of highly compensated employees over non-highly compensated employees.

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Elective Contributions

Voluntary pre-tax compensation that employees elect to defer into the 401k plan.

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Eligibility Requirements

Rules governing which employees may enter the 401k plan and the timing of their eligibility to enter.

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Eligible Employee

Any employee who is eligible to become a participant in the 401k plan under the terms of the Plan Document.

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Employee Contributions

Voluntary post-tax salary deductions an employer permits its employees to make. The your plan administration software plan does not accommodate any form of post-tax contributions.

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Employee Retirement Income Security Act of 1974 (ERISA)

An act of Congress encompassing both IRS provisions, which determine when a plan is tax-qualified, and Department of Labor provisions, which govern the rights of participants and beneficiaries and the obligations of plan fiduciaries.

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Employer Matching Contributions

Any contribution the employer makes that is allocated to employees purely on the basis of employee contributions. Typically, employer matching contributions are based on a percentage of the employees’ own contributions.

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Entry Date

The date specified in the plan document on which employees who have met the eligibility requirements may enter the plan.

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401k Plan

A plan in which employees may elect to make pre-tax contributions to an employer-sponsored plan in lieu of receiving taxable income.

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Fiduciary

In general, a person who occupies a relationship of particular trust with respect to an employee benefit plan covered by ERISA, and who is subject to the standard of conduct imposed on such a person. The Plan Administrator and plan trustees are fiduciaries. NASD broker/dealers and investment companies or their representatives are typically not fiduciaries.

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Five-Percent Owner

An employee who owns, directly or indirectly, more than 5% of the stock of his/her employer or, if the employer is not a corporation, more than 5% of the capital or profits interest. A 5% owner is both a highly compensated employee and a key employee.

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Forfeitures

The portion of a participant's account balance which is made up of employer contributions and is non-vested at termination of service and remains as part of the plan assets instead of being distributed to the participant. The disposition of forfeitures is governed by the Plan Document provisions. Employee contributions are always 100% vested.

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Form 1099-R

The statement for recipients of distributions from any retirement plan or IRA that must be filed with the IRS and provided to each participant or relevant beneficiary who received either a total or a partial distribution during the calendar year.

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Hardship Withdrawal

A withdrawal from a 401k plan because of an immediate and heavy financial need of a participant that cannot be satisfied from other resources. Hardship distributions can be made for certain medical expenses, educational expenses, purchase of a principal residence, or to prevent foreclosure of a principal residence.

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Highly Compensated Employee (HCE)

A highly compensated employee is:

• A 5% or more owner

• An employee who earned more than $85,000 (to be adjusted in 2002) in the prior year and was among the top 20% of employees by annual salary

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Hour of Service

Any hour for which an employee is paid or entitled to payment from an employer for his or her work. This includes periods of time during which no real work was performed where the employee nonetheless received compensation (e.g., vacation, holidays, sick leave, jury duty). Any hour for which an employee is paid or entitled to payment from an employer for his or her work. This includes periods of time during which no real work was performed where the employee nonetheless received compensation (e.g., vacation, holidays, sick leave, jury duty).

Key Employee

As of 2002, a "key employee" is defined as an employee meeting any of the following criteria:

• An officer of the company earning compensation of more than $130,000

• A 5% owner of the company

• A 1% or more owner of the company projected to earn more than $150,000

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Letter of Indemnity

A your plan administration software form used to indemnify (i.e., hold harmless) the investment company for following the Plan Administrator's specific written instructions.

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Lookback Year

The year preceding the determination year.

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Lump Sum Distribution

A distribution from a qualified retirement plan of the entire sum of a participant's balance within a single taxable year, made in any of the following situations:

• Because of the participant's separation from service

• After the participant reaches 59 1/2 years of age

• Because of the participant's death

• After the employee becomes disabled

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Mandatory Aggregation

The requirement that certain plans or portions of plans must be tested together when applying the minimum coverage test.

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Mandatory Disaggregation

The requirement that certain portions of plans must be tested separately when applying the minimum coverage test.

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Matching Contributions

See Employer Matching Contributions.

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Nonforfeitable Benefits

Benefits a participant has an unconditional right to by virtue of 100% vesting in such amounts.

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Non-Highly Compensated Employee (NHCE)

Any eligible employee who does not meet the definition of highly compensated employee.

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Non-Key Employee

Any employee who does not meet the definition of a key employee.

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One-Percent Owner

An employee who owns, directly or indirectly, more than 1% of the stock of his/her employer, or if the employer is not a corporation, more than 1% of the capital or profits interest. A 1% owner who has compensation in excess of $150,000 (1998) is considered a key employee.

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Opinion Letter

A letter issued by the IRS to the sponsors of master and prototype plan documents approving the content for general use. Employers who adopt a master or prototype plan for which an opinion letter exists may still choose to seek their own determination letters.

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Participant

An employee or former employee who has an account balance under the plan.

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Plan Document

See Prototype Plan, below.

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Plan Sponsor

An employer or business entity that offers the plan to its employees.

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Plan Year

The 12-month period (or shorter for the initial year) used as the fiscal year of the plan. It works well when the plan year is the same as the calendar year.

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Posting Period

The posting period is entered for every transaction that goes into the your plan administration software system, including monthly processing, batch processing, and single transactions entered from the Employee Information Activity screen. The posting period defines the month and year that the transaction was posted to the investment account (which is not always the date that the transaction was processed). It is the date that feeds the 5500 report and the Year End Auditor's Worksheet. It eliminates the need to tell the system to filter out certain months (i.e., December) and add in certain months from the prior year, since every transaction already has an associated posting date.

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Premature Distribution

A distribution made before the participant reaches 59 1/2 years of age.

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Premature Distribution Penalty

A 10% excise tax on premature distributions from a qualified plan for reasons other than death, total disability, normal retirement, or certain other exceptions.

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Profit Sharing Contribution

A discretionary employer contribution. May be partly discretionary (limited by the existence of employer profit) or wholly discretionary (determined without regard to profit).

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Prototype Plan (Plan Document)

An IRS approved plan that is made available for adoption by the clients of the prototype sponsor. your plan administration software is a prototype sponsor.

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Qualified Domestic Relations Order (QDRO)

A Domestic Relations Order that meets specific criteria and is found by the Plan Administrator to entitle an alternate payee to receive some or all of a participant's benefits under the plan.

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Qualified Non-Elective Contributions (QNEC)

Employer non-elective contributions, other than matching contributions, that are 100% vested at all times and can not be withdrawn prior to the attainment of certain conditions. This type of employer contribution can be used to increase the contribution percentages of Non-Highly Compensated Employees to satisfy the nondiscrimination tests that apply to 401k plans.

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Qualified Plan

A plan that qualifies for special tax treatment if it satisfies Section 401(a) of the Internal Revenue Code. The 401k is such a plan.

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Rollover

A tax-free transfer of all or part of a distribution from a qualified retirement plan to another qualified retirement plan or to an IRA.

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Rollover Contribution

A plan contribution made by an employee, attributable to an eligible rollover distribution from a qualified plan or a rollover IRA.

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Rollover IRA

An IRA composed exclusively of assets that have come as a result of a participant's termination from a qualified 401k plan and that will be rolled over into a new employer's 401k plan. Also called a conduit IRA.

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Safe Harbor Rules

IRS regulations that specify plan provisions or plan operational characteristics by virtue of which more complex rules or tests need not be considered.

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Salary Deferral (Contributions)

The amount of a participant's voluntary reduction in pay. An election to defer pay must be made in advance of the employer's withholding such amounts from a participant's compensation. The employer must then contribute the deferral to the 401k plan assets as soon as administratively possible.

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Summary Annual Report (SAR)

A report of overall plan financial information provided to each participant in a format published by the Department of Labor. The information is derived from the 5500-series annual report.

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Summary Plan Description (SPD)

A brief description in writing of the company's your plan administration software plan provisions. It is kept on file and is available upon request by an interested party.

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Top-Heavy Plan

A qualified retirement plan whose total amount of key employee accounts exceeds 60% of the total account values for all employees. In such a case, the plan must provide accelerated vesting and minimum benefits or contributions for non-key employees.

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Treasury Regulations

Regulations written by the IRS interpreting the provisions of the Internal Revenue Code.

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Trust

A legal entity established to hold plan assets for the sole benefit of participants of a qualified retirement plan.

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Trustees

Individuals or entities named in a plan's trust agreement to manage and control plan assets. Trustees are also plan fiduciaries.

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Vested Benefits

Participant benefits that become nonforfeitable due to the passage of time or occurrence of an event such as retirement or plan termination.

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Vesting Schedule

The time it takes for a participant to own 100% of employer contributions and matching contributions (elective deferrals are always 100% vested and nonforfeitable). Although the employer can adopt shorter schedules, the IRS allows two maximum vesting schedules:

• 5-year “cliff” vesting, in which the participant is not vested in any amount until he or she has completed 5 years, whereupon he or she is 100% vested

• 3- to 7-year “graded” vesting, in which the employee accumulates his or her rights to employer contributions over time (0% for first 2 years, then 20% per year until fully vested at 7 years)

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Year of Service

A calendar year, plan year, or any period consisting of 12 consecutive months during which the participant has completed 1000 or more hours of service.

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