Pension Consultant key terms

The portion of a participant's pension benefit earned to date under the plan formula, usually expressed as a monthly annuity payable at normal retirement age. ERISA limits amendments that reduce it.

The demographic and economic estimates an actuary uses to project future events, such as mortality, turnover, retirement timing, salary growth, and investment return, in order to value plan obligations and costs.

The technique that assigns the present value of a plan's total benefits to past and future periods, producing an annual normal cost and an unfunded liability. Common methods include unit credit and entry age.

A nondiscrimination test comparing average deferral rates of highly compensated employees with those of non-highly compensated employees in a 401(k) plan. Failure requires refunds or corrective contributions.

A nondiscrimination test applied to employer matching and after-tax employee contributions, comparing averages for highly compensated and non-highly compensated employees. It parallels the ADP test but covers different contribution types.

An ERISA prohibition on plan amendments that decrease a participant's accrued benefit, except under narrow permitted circumstances. It protects benefits already earned, not future accruals.

The process by which a participant earns additional pension benefit over a period of service, determined by the plan formula. Accrual rates must satisfy age and service nondiscrimination rules.

A defined benefit plan expressed as a hypothetical account credited with pay credits and interest credits. It is legally a DB plan, so benefits are guaranteed and funded through a trust.

The process of fixing plan failures, such as missed deferrals or improper distributions, using IRS correction programs and restoring affected participants to the position they would have occupied.

A nondiscrimination requirement under Internal Revenue Code section 410(b) that a plan cover a sufficient percentage of non-highly compensated employees or satisfy an alternative ratio test.

A pension plan that promises a specified benefit at retirement, typically based on pay and service, with the employer bearing investment risk and funding the promised amount.

A plan in which the employer contributes a defined amount to individual accounts, and the participant's retirement benefit depends on contributions and investment results rather than a promised benefit.

The IRS Employee Plans Compliance Resolution System, a set of programs allowing plan sponsors to correct qualification failures voluntarily, generally with reduced sanctions compared with examination findings.

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.

The present value of all benefits accrued to date under a defined benefit plan, calculated using prescribed actuarial assumptions. It drives minimum required contributions and funding-based benefit restrictions.

An employee who meets statutory compensation or ownership thresholds, such as owning five percent of the employer or earning above an indexed pay level. Their benefits are tested for nondiscrimination.

A defined benefit plan design, such as a cash balance or pension equity plan, that expresses benefits in account-like terms while retaining DB funding and guarantee rules.

The smallest amount a plan sponsor must contribute to a defined benefit plan for a plan year under funding rules, reflecting the funding target and normal cost with applicable cushion amounts.

A statistical schedule of death rates by age and sometimes gender or other factors, used by actuaries to value life annuities and project how long benefits will be paid.

The annual process of verifying that plan benefits and contributions do not disproportionately favor highly compensated employees, applying statutory tests such as coverage, ADP, ACP, and general tests.

The actuarial present value of benefits attributed to the current plan year under the plan's cost method. It is a component of the annual funding calculation separate from amortization of unfunded liabilities.

The benefit payable at a plan's normal retirement age under the plan formula, before adjustment for early commencement or optional forms of payment.

The requirement to furnish participants with plan information such as summary plan descriptions, fee disclosures, and benefit statements within prescribed deadlines, supporting informed decisions and transparency.

A formal change to plan terms adopted by the sponsor, subject to notice, anti-cutback, and qualification requirements. Amendments must be reflected in a timely restated document.

A plan's satisfaction of Internal Revenue Code requirements needed to receive favorable tax treatment, including coverage, vesting, benefit limits, and distribution rules.

The annual accounting period on which a plan's records, testing, and funding are based. It may be the calendar year or another twelve-month period specified in the plan document.

A transaction between a plan and a party in interest that ERISA restricts to prevent conflicts of interest, such as a sale of property or extension of credit, unless an exemption applies.

An actuarial measure of the present value of all benefits earned to date, including the effect of assumed future salary increases. It is used in accounting disclosures rather than statutory funding.

The ERISA standard requiring fiduciaries to act with the care, skill, prudence, and diligence that a knowledgeable professional would use in similar circumstances, considering the plan's purposes.

A failure by a plan fiduciary to meet ERISA duties of loyalty or prudence, which can lead to personal liability, restoration of losses, and equitable relief for the plan.

The process of translating a lump-sum account balance or accrued benefit into a periodic payment stream using actuarial assumptions such as interest and mortality.

A plain-language document that explains plan provisions, eligibility, benefits, and participant rights, and must be furnished to participants within ERISA deadlines.

The rule determining when a participant gains a nonforfeitable right to employer-provided benefits. Statutory minimum schedules apply, and full vesting occurs at normal retirement age.

The employer or other entity that establishes and maintains a pension plan, bearing funding obligations for defined benefit promises and responsibility for plan administration and compliance.

A service provider that maintains participant accounts, processes contributions and distributions, and produces statements for a retirement plan, typically under a written service agreement.

Advisory work helping a sponsor choose plan type, benefit formulas, eligibility, vesting, and contribution features that balance workforce goals, cost, and compliance constraints.

A strategy to reduce pension risk, such as shifting investment risk through liability-driven investing, purchasing annuities, or offering lump sums to participants.