AAPA key terms

The portion of a participant's pension benefit earned to date under the plan's formula, often expressed as a monthly amount payable at normal retirement age. It is used to measure vesting, funding, and benefit protections.

Estimates about future events such as interest rates, mortality, salary growth, and retirement timing that an actuary uses to project plan costs and funding obligations. Changes to these can materially shift required contributions.

A periodic calculation by an actuary that measures a plan's assets and liabilities and determines the minimum and maximum allowable contributions. Results are reported to plan sponsors and, where required, filed with regulators.

A nondiscrimination test comparing average deferral percentages of highly compensated and non-highly compensated employees in a 401(k) plan. Failure limits contributions by highly compensated employees and may require refunds or corrective contributions.

A nondiscrimination test comparing average employer matching and after-tax contribution percentages of highly compensated and non-highly compensated employees. It runs alongside the ADP test and can trigger refunds or corrective contributions.

A written or electronic notice showing a participant's accrued or vested benefit, and in defined contribution plans the account balance and investment results. Timing and content requirements vary by plan type and regulation.

A period in which an employee fails to meet the plan's hours or service requirements, potentially affecting vesting, eligibility, or benefit accruals. Plan rules govern whether and how prior service is restored.

A defined benefit plan that expresses each participant's benefit as a hypothetical account credited with pay credits and interest credits. Participants receive a lump sum or annuity at retirement, while the sponsor bears investment risk.

A refund of excess contributions or excess deferrals, plus allocable earnings, returned to participants to fix a failed nondiscrimination test or contribution limit. Deadlines and tax reporting rules apply.

A pension plan that promises a specified benefit, usually based on salary and years of service, funded by employer contributions. The employer bears investment risk and generally must insure benefits through a federal guaranty program.

A plan in which each participant has an individual account, and benefits depend on contributions plus investment gains or losses. The participant typically bears investment risk and makes investment decisions.

The age and service conditions an employee must satisfy to enter a plan, subject to statutory maximums. Plans may also impose entry dates and rules for rehired employees.

The date on which an eligible employee begins participating in the plan, such as the first day of the month or quarter after meeting eligibility. Plans may offer multiple entry dates per year.

A person who exercises discretionary authority or control over plan management or assets, or who renders investment advice for a fee. Fiduciaries owe duties of loyalty and prudence to participants.

An amount contributed above statutory or plan limits, such as the annual additions limit or the compensation limit. Excess amounts must be corrected within prescribed deadlines to avoid tax consequences.

Required notices to plan sponsors and participants explaining plan-related expenses, investment fees, and compensation received by service providers. Disclosures support informed decision-making and fiduciary oversight.

The present value of a defined benefit plan's accrued benefits, calculated using actuarial assumptions. It is a key measure for determining minimum required contributions and funding status.

An employee who meets statutory compensation or ownership thresholds for the prior or current year. This classification determines which employees are subject to nondiscrimination testing limits.

A withdrawal from a plan made because of an immediate and heavy financial need, permitted only if the plan allows it and the distribution meets regulatory conditions. It may carry tax and contribution restrictions.

A required annual withdrawal from a tax-favored retirement account beginning at a specified age or after death. Failure to take the required amount can result in a substantial excise tax.

The age specified in the plan at which a participant may retire with an unreduced benefit, often tied to years of service. It affects benefit accrual, vesting, and distribution timing.

An arrangement in which participants choose how their account assets are invested from a plan menu. Sponsors must select and monitor the menu prudently and provide required disclosures.

The formal written instrument that establishes the plan and sets out its terms, including eligibility, benefits, contributions, and distributions. It must be amended for legal changes and administered accordingly.

A formal change to the plan document adopted by the plan sponsor. Amendments must follow prescribed procedures, respect protected benefits, and be communicated to participants as required.

A loan from a participant's vested account balance permitted by the plan and governed by tax and compliance rules. It requires a written agreement, reasonable interest, and a repayment schedule.

A transaction between a plan and a party in interest that is barred by law unless an exemption applies, such as certain sales, loans, or use of plan assets. Violations can trigger taxes and fiduciary liability.

The fiduciary standard requiring a plan fiduciary to act with the care, skill, prudence, and diligence that a knowledgeable person would use in similar circumstances. It focuses on process, not outcomes.

The deadline by which a participant must begin taking required minimum distributions, generally April 1 of the year following the year the participant reaches the applicable age. Later distributions follow an annual schedule.

A plain-language summary of the plan's annual financial report that must be furnished to participants. It highlights assets, liabilities, and expenses and must be provided within prescribed deadlines.

A notice describing changes to the plan that materially affect participants, required within a set period after adoption. It supplements the summary plan description until that document is updated.

A plain-language document explaining plan terms, rights, and obligations that must be furnished to participants. It must be updated periodically and on request, and it governs participant understanding of benefits.

A plan in which a large share of benefits or account balances belongs to key employees. Such plans must provide minimum benefits or contributions to non-key employees.

The rules determining when a participant gains a nonforfeitable right to employer-provided benefits. Schedules must satisfy statutory minimums and affect forfeitures, distributions, and benefit statements.

The statutory cap on total contributions and forfeitures allocated to a participant's account in a defined contribution plan for a year. It includes employee and employer contributions, subject to specific exceptions.

A person or entity with a relationship to the plan, such as a fiduciary, service provider, employer, or certain relatives. Dealings with such parties are restricted unless an exemption applies.