APA key terms

The portion of a participant's pension benefit earned to date under the plan's formula, payable at normal retirement age. It is the basis for vesting, benefit statements, and certain funding and nondiscrimination tests.

The demographic and economic estimates, such as mortality, interest, turnover, and salary growth, that an actuary uses to project costs and benefits. They must be reasonable in the aggregate for funding and minimum funding purposes.

Two forms of benefit are actuarially equivalent when they have the same present value under the plan's stated assumptions. The concept governs optional forms of payment and spousal consent rules.

A summary of a defined benefit plan's funded status, assets, liabilities, and related information that must be furnished to participants, beneficiaries, and others each year. Content and timing rules are set by federal law.

The cap on total contributions and forfeitures allocated to a participant's account in a defined contribution plan for a year. It covers elective deferrals, employer contributions, and certain other amounts combined.

The process by which a participant earns additional pension benefits over a period of service under the plan's formula. Accrual rates are tested for nondiscrimination and must satisfy minimum accrual rules.

A period of absence from employment that meets the plan's and legal standards, often stated in hours or consecutive years. Breaks can affect vesting credit and eligibility to reenter the plan.

A defined benefit plan that expresses each participant's benefit as a hypothetical account credited with pay credits and interest credits. It is legally a pension plan but looks like an account to participants.

The maximum amount of pay that may be taken into account for plan purposes for a given year. It applies to contributions, benefits, and nondiscrimination testing and is adjusted periodically.

The annual test ensuring that a plan benefits a sufficient share of non-highly compensated employees relative to highly compensated employees. Failure can require corrections or plan amendments.

A pension plan that promises a specific benefit at retirement, usually based on pay and service, with the employer bearing investment risk. Funding is governed by minimum funding standards and actuarial valuation.

A plan in which each participant has an individual account and the benefit is whatever the account can provide at distribution. The participant generally bears investment risk, and annual limits apply to contributions.

A tax-free transfer of an eligible distribution from a plan directly to another plan or an IRA. It avoids mandatory withholding that applies to distributions paid to the participant.

An amount a participant chooses to have withheld from pay and contributed to a plan, such as a 401(k) or 403(b) plan, on a pre-tax or designated Roth basis. Annual limits apply.

A distribution that can be rolled over tax-free to another eligible plan or IRA, generally excluding required minimum distributions, hardship withdrawals, and certain periodic payments. Correct classification affects withholding and taxation.

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 and must follow plan documents.

The requirement that plan assets be held and used solely for the purpose of providing benefits to participants and beneficiaries and defraying reasonable administrative expenses. It is a core fiduciary duty.

The annual return that most employee benefit plans must file with federal regulators, reporting financial, participant, and operational information. Small plans may be eligible for simplified schedules.

A ratio comparing a defined benefit plan's assets to its funding target, expressed as a percentage. It signals funded status, affects minimum contributions, and drives participant disclosure obligations.

An employee who meets statutory pay or ownership thresholds for the look-back year, such as owning a large stake or earning above a set dollar amount. Classification drives nondiscrimination and coverage testing.

An annuity payable for the joint lives of the participant and spouse, continuing to the survivor after the first death. Plans must offer a qualified form to married participants unless waived with spousal consent.

Payment of a participant's entire benefit in a single amount rather than as an annuity. Taxation, rollover eligibility, and actuarial equivalence rules depend on how and when it is paid.

The rule requiring plans to withhold 20% of an eligible rollover distribution paid to a participant rather than sent in a direct rollover. The withheld amount can be replaced to complete a rollover.

The smallest amount an employer must contribute to a defined benefit plan for a plan year under funding rules. Shortfalls can trigger excise taxes and funding-related restrictions.

The set of tests ensuring that plan benefits and contributions do not disproportionately favor highly compensated employees. Failures may require refunds, corrective contributions, or plan changes.

The age or age-and-service point at which a participant may retire with an unreduced benefit under the plan. It anchors vesting, benefit accrual, and distribution timing rules.

A transaction between a plan and a party in interest that is barred because it may involve a conflict of interest, such as certain sales, loans, or use of plan assets. Exemptions may apply.

The fiduciary standard requiring a fiduciary to act with the care, skill, prudence, and diligence that a knowledgeable person familiar with such matters would use. It is judged by process, not hindsight.

The default annuity for married participants that pays a reduced benefit for life and then a survivor benefit to the spouse. A participant may waive it only with proper spousal consent.

The deadline by which a participant must begin required minimum distributions, generally April 1 of the year after reaching the applicable age. Missing it triggers penalties and correction requirements.

The minimum amount that must be distributed each year from tax-favored retirement accounts once the required beginning date is reached. Rules govern calculation, timing, and beneficiary payments.

An elective deferral contributed on an after-tax basis to a designated Roth account, with qualified withdrawals tax-free. It is still counted against deferral and annual addition limits.

A spouse's written, witnessed or notarized agreement allowing a participant to waive a survivor annuity or name a different beneficiary. It protects the spouse's statutory benefit rights.

A plain-language summary of a plan's annual Form 5500 financial information that must be furnished to participants. It is distinct from the fuller annual funding notice for pension plans.

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

The timetable under which a participant earns a nonforfeitable right to employer-provided benefits. Vesting can be based on years of service and must meet minimum statutory schedules.

The statutory ceiling on annual benefits from a defined benefit plan or annual additions to a defined contribution plan. Limits are adjusted for cost of living and coordinated across plan types.