July 29, 2010
This is an alphabetical index of terms and terminology relating to Crain's Benefit Outlook. The purpose of the Glossary is to clarify the language used within the site.Please click on any letter to list the terms beginning with that letter.
- Accumulated Benefit Obligation (ABO) - The value of a pension plan's vested and non-vested promised benefits. The amount of the obligation is usually determined by a formula; the formula is typically based upon a worker's years of service.
- Alpha - The premium a fund would be expected to earn if the market rate of return were equal to the Treasury bill rate. A positive alpha shows that a fund has earned (on the average) a premium above that expected for the level of market variability. Often as a performance indicator.
- After-tax contribution - A portion of a person's income that has already been taxed by the IRS and is then contributed to a qualified plan. Such contributions are not as tax efficient as pre-tax contributions.
- Alternative investments -Definitional vary, but alternative investments generally are thought of as investments in non-traditional asset classes-that is, assets that do not trade publicly on an organized exchange. Examples include venture capital, private equity, and hedge funds.
- Annuity - A contract that provides an income for a specified period of time such as a number of years or for life.
- Asset allocation - Distributing funds among various types of assets to meet investment goals and/or specified risk levels. An asset allocation mutual fund typically shifts its investments in different asset classes (stocks, bonds cash, for example) to take advantage of market condiditons.
- Back sweep - To enroll employees who initially declined participation in a 401(k) plan
- Balanced funds - Funds which try to keep the ratio of stocks and bonds in their portfolios stable-or predictable-in different market conditions.
- Beta - A risk statistic that measures how the price of a stock moves in relation to the market (typically, the S&P500). High beta indicates volatility-that is, moving out of lockstep with the market.
- Base period (unemployment compensation) - The first four of the last five completed calendar quarters prior to the calendar quarter in which a former worker's unemployment claim is effective.
- Cafeteria plan - Optional plan in which employees choose benefits of their choice, paid for by pre-tax dollars. Typical cafeteria plans include life, health, disability, and dental insurance, as well as automobile and homeowners' insurance. Also called voluntary or supplemental plans, the plans are governed by IRS Section 125-but do not fall under the purview of ERISA.
- Cessation benefit - Health-care benefit that covers the cost of medical programs aimed at helping an employee curb harmful behavior, such as smoking.
- Cobra (Consolidated Omnibus Budget Reconciliation Act) - Federal law that gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time and under certain circumstances. Qualified individuals may be required to pay the entire premium for coverage up to 102% of the cost to the plan.
- Cola (Cost of Living Adjustment) - Annual increase or decrease in payout-of retirement income, for example-based upon the change in a measure of inflation (often the CPI).
- Complaint ratio - A measure used by some state insurance departments to track consumer complaints against insurance companies
- Company match - An employer contribution-made to a qualified retirement plan-that is based on a employee's contribution. The amount is often expressed as a ratio of the employer contribution to the worker contribution (as in a dollar-for-dollar match).
- Consumer-driven health care - Health insurance plan in which a worker pays directly for routine health care expenses. Generally, such plans are coupled with a pre-tax, health-savings account (HSA) and a high-deductible medical plan to cover catastrophic expenses. Employers often contribute to workers' HSAs.
- Credited service - The period of employment that is recognized as service for one or more benefit plan.
- Custodian - An organization-usually a bank-that holds and administers securities for its customers. A custodian often provides other services as well, including clearance and settlement, cash management, foreign exchange and securities lending.
- Defined benefit plan - Pension plan in which an employer guarantees a specific monthly payout to the employee and usually makes contributions to fund the benefit. The payout is often based on a combination of salary and years of service. Once the standard pension plan for all workers, DBs have been supplanted by defined-contribution plans in recent years-notably 401(k)s.
- Defined contribution plans - Employer-administered pension plan such as a 401(k) in which the payout is determined by the amount of money in the plan at retirement age. Unlike a defined-benefit plan, a DC plan shifts the investment risk onto the plan participant, not the plan sponsor.
- Determination letter - An IRS document indicating the qualified status of a retirement plan. Money invested in a qualified plan remains tax-deferred until it is distributed.
- Employee assistance plan - A program that is available for covered individualsthat provides counseling or other service for personal problems, such as mental illness or substance abuse
- Employee welfare benefit plan - A company-sponsored benefit program (other than a pension plan) covered by ERISA.
- Elimination period - A type of deductible or waiting period usually found in disability policies. The period is counted in days from the beginning of an illness or injury.
- ERISA (Employee Retirement Income Security Act) - The Federal law, enacted in 1974, that governs employer-offered benefit plans and the administration of such plans
- Expense ratio - Percentage of an investment fund's average net assets that is paid out in expenses. Expenses include 12b-1 fees, management and administration fees and all charges associated with the fund's daily operations, except brokerage costs.
- 401(k) - employer-sponsored pension plan for workers at for-profit corporations and non-profit organizations. Under the 401(k) setup, employees contribute to their plans using pre-tax dollars; the funds are taxed at the time of withdrawal. Except in certain cases (such as hardship), a workers may not take money out of a 401(k) plan until the age of 59 and 1/2); early withdrawal is subject to penalities and tax. Employers often make contributions to 401(k) plans.
- 403(b) - A tax-deferred retirement plan offered by nonprofit organizations, public schools, and municipal agencies. 403(b) plans tend to follow 401(k) rules for contributions, rollovers, and withdrawals.
- Funds of funds - a mutual fund that invests in other mutual funds rather than directly in individual securities.
- Growth fund - mutual fund that focuses on increasing the worth of the original investment rather than price stability or income.
- Guaranteed income contract (GIC) - An option in an employer-sponsored retirement savings plan. Contract between an insurance company and the plan that guarantees a stated rate of return on invested capital over the life of the contract.
- HIPPA (Health Insurance Portability and Accountability Act) - The Federal law enacted in 1996, which protects a worker's medical coverage if that employee quits or gets fired. HIPPA also set standards for protection of a patient's private medical information.
- Health maintenance organizations (HMO) - Group insurance that entitles members to services of participating hospitals and clinics and physicians.
- Health savings account (HSA) - A tax advantaged account used to fund medical payments; typically offered in conjunction with a high-deductible health-insurance plan
- High-yield bond - debt instrument that pays high interest rates. High-yield bonds are usually issued by companies or institutions deemed to be bad credit risks. Thus, they pay additional interest to make up for the additonal risk. AKA: non-investment grade debt or junk bonds.
- Hybrid pension plans - a cross between defined-benefit plans and defined-contribution plans. Like traditional pensions, hybrids guarantee the amount of an employee's retirement benefits. But the benefits are described as a lump-sum account balance (like a 401(k) rather than lifetime monthly payments. Such plans are funded by the employer.
- Indemnity plan -group health plan in which cash payments for covered services are made to plan the participant or assigned to the service provider of the service.
- Individual retirement account (IRA) - Savings account that lets a participant set aside up to $5,000 per year (or $6,000 for an individual at least 50 years old). Contributions may be tax-deductible depending upon income level or participation in another qualified retirement plan; except for a Roth IRA, earnings are tax-deferred.
- Key person insurance - Insurance on the life or health of a crucial employee whose services are essential to the continuing success of a business.
- Lifestyle funds - Funds that automatically adjust their assets among stocks, bonds and money market instruments. The adjustments are aimed at reaching a specific investment goal and are tied to certain criteria, such as an employee's age or risk appetite.
- Load - A sales charge added to the price of a mutual fund share. Funds that don't have sales charges are known as no-load funds.
- Loss ratio - Percentage of each premium dollar an insurer pays out on claims.
- Managed care - A health care arrangement in which an organization-such as an insurer, health maintenance organization or another type of doctor-hospital network-acts an intermediary between the patient and the physician. The plans make capitated payments to health care providers on behalf of its members, thus shifting the financial risk for care from patients and payers to providers.
- Multiplier - A percentage that is applied to a plan participant's compensation to determine a monthly benefit.
- NCQA (National Committee for Quality Assurance) - Not-for-profit group that provides research on trends in health care and accredits and certifies a wide range of health care organizations; known for its seals
- Out-of-pocket expense - The cost for services that a plan participant must pay. Out-of-pocket expenses may include a deductible or copayments.
- PBGC (Pension Benefit Guaranty Corporation) - Federal agency that backstops private-sector defined benefit pension plans. The PBFG is funded primarily by premiums paid by companies that sponsor insured defined benefit plans.
- Plan sponsor - Employers who establish and administer a qualified employee benefit pension plan. Sometimes applied to health-care plans.
- Point of Service (POS) - Managed health-care plan where the employee pays no deductible and usually only a minimal co-payment when using a health-care provider within the prescribed network. Requires a primary care physician, who is responsible for all referrals within the network.
- Pure endowment - A life insurance contract that pays a periodic income benefit for the life of the owner of the annuity.
- Preferred Provider Organization (PPO) - A medical network made up of physicians and others that provide services on a discounted fee-for-service basis. Participants in a PPO pay a lower percentage of the cost of services if they use an in-network provider than if they go outside the network.
- Qualified annuity - A form of annuity purchased with pretax dollars as part of a retirement plan that benefits from special tax treatment, such as a 401(k) plan.
- Roth IRA - Individual retirement account in which contributions come from aftertax dollars
- Section 415 - A section of the IRS code that provides for dollar limitations on benefits and contributions under qualified retirement plans.
- Target-date fund - Mutual fund that automatically resets the asset mix (stocks, bonds, cash equivalents) in its portfolio based on a selected time frame that is appropriate for a particular investor. Similar to a life-cycle fund except that a target-date fund is pegged to a date in the future (such as retirement).
- Third-party administrator - A outside companythat manages the administration and claims processing of a benefit plan.
- 12(b) 1. fees - Charges assessed by mutual funds for the sale and promotion or other activity connected with the distribution of their shares.
- Vested - When an employee becomes entitled to a benefit. Vesting can occur right away or after a certain period of employment or participation in a benefit plan.
