RETIREMENT PLAN GLOSSARY OF TERMS

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1 RETIREMENT PLAN GLOSSARY OF TERMS Active Management: Where a person or team, often called the portfolio manager, actively makes investment decisions and initiates buying and selling of securities using analytical research, forecasts, and their own judgment and experience. The opposite of active management is called passive management, better known as "indexing." Actual Contribution Percentage (ACP): In a 401k plan, this is the result of the average of ratios of combined contributions to compensation for both highly compensated and non-highly compensated employees. Each employee's ratio is calculated and then averaged for the group. Actual Deferral Percentage (ADP): This is the proportion of a plan participant's compensation that is contributed to a 401k plan as an employee elective deferral. Advisory Letter: A written statement issued by the Internal Revenue Service to a volume submitter practitioner or volume submitter mass practitioner as to the acceptability of the form of a specimen plan and any related trust or custodial account under 401(a). Annual Defined Contribution Limit: The maximum 401k contribution limit that applies to all employee and employer 401k contributions in a calendar year. This limit is the lesser of 100% of the employee's total pre-tax compensation or a fixed amount that can change annually. Asset Allocation Fund: A common trust fund or mutual fund that spreads its portfolio among a wide variety of investments, including domestic and foreign stocks and bonds, government securities, and real estate stocks. This gives small investors far more diversification than they could get allocating money on their own. Some of these funds keep the proportions allocated between different sectors relatively constant, while others alter the mix as market conditions change. Automatic Contribution Arrangement: A feature in a plan whereby a covered employee's compensation is reduced by an amount specified in the plan and contributed to the plan on the employee's behalf unless the employee makes an affirmative election to have a different amount or no amount contributed to the plan. In the case of a 401k plan with an automatic contribution arrangement, the amounts withheld from employees' compensation are contributed to the plan as elective deferrals and the percentage of compensation contributed is called the default deferral rate.

2 Auto Enrollment: The practice of enrolling all eligible employees in a plan and beginning participant deferrals without requiring the employees to submit a request to participate. Plan design specifies how these automatic deferrals will be invested. Employees who do not want to make deferrals to the plan must actively file a request to be excluded from the plan. Participants can generally change the amount of pay that is deferred and how it is invested. Auto Escalation: A plan which automatically increases the percentage of (retirement) funds saved from salary. This type of plan generally features a default or standard contribution escalation rate. Balanced Fund: A common trust fund or mutual fund that maintains a balanced portfolio, generally 50% bonds or preferred stocks and 50% common stocks, but this percentage can and does vary. Blackout Period: When a plan sponsor decides to switch from one plan vendor to another, there is typically a period during which participants are not permitted to make changes in their investment selections. This is known as the blackout period. Once the blackout period commences and until it ends, participants can no longer direct the investments in their accounts. Blackout periods can last up to 60 days. Brokerage Window: Some 401(k) plans allow participants to invest in stocks and funds offered by a brokerage firm selected by your plan administrator. This is often referred to as a brokerage window, or a self-directed account. Bundled Plan: A 401k package which includes all investment, administration, education, and recordkeeping that is sold as one unit. This is in contrast to a basic 401k plan in which the plan sponsor can individually hire each component provider separately. Cash Balance Plan: A defined benefit plan in which each participant has an account that is credited with a dollar amount that resembles an employer contribution, generally determined as a percentage of pay. Each participant's account is credited with earned interest. The plan provides the benefits in the form of a lump-sum distribution or annuity. Catch-up Provision: A provision found in some 401k plans that allows an eligible employee who are at least age 50 to make higher annual contributions in the years prior to retirement. Cliff Vesting: A 401k plan with "Cliff Vesting" vests 100% of employer contributions after a specified number of years of service. After three years of service, benefits must be fully vested. Collective Trust Fund: Work and act much like a mutual fund. Collective trust (also known as a common trust fund) funds offer investors many of the same benefits as mutual funds, such as portfolio diversification, professional management and investment flexibility. But since collective funds do not impose the same administrative fees and do not have some of the regulatory requirements that mutual funds do, they generally have lower operating expenses.

3 Compliance Testing: Testing required by the IRS to make sure that the 401k plan is fair to both highly compensated and ordinary employees. Contingent Beneficiary: A contingent beneficiary stands second-in-line, behind the primary beneficiary, to inherit the assets of a retirement plan. Controlled Group: A group of trades or businesses (employers) that are related through ownership. A controlled group of employers is either (1) one or more chains of employers connected through ownership with a common parent employer where at least 80% of each employer, other than the common parent, is owned by one or more of the other employers and the common parent owns at least 80% of one or more of the other employers ("parentsubsidiary controlled group"); (2) two or more employers where five or fewer common owners satisfy an 80% common ownership test and a 50% identical ownership test ("brothersister controlled group"); or (3) three or more employers where each employer is in either a parent-subsidiary controlled group or a brother-sister controlled group and at least one of the employers is the common parent employer in a parent-subsidiary controlled group and is also in a brother-sister controlled group ("combined group"). Corrective Distribution: A distribution of funds from the plan to correct a nondiscrimination test or to correct a contribution in excess of a statutory limitation. Custodian: The bank or trust company that maintains a retirement plan's assets, including its portfolio of securities or some record of them. Provides safekeeping of securities, but has no role in portfolio management. Default Deferral Rate: In the case of an automatic contribution arrangement in a 401k plan, the percentage of compensation, specified in the plan, withheld automatically from a covered participant's compensation (unless the participant elects otherwise) and contributed to the plan as an elective deferral. Defined Benefit: A defined benefit plan is an employer maintained plan that pays out a specific, pre-determined amount to retirees. Defined benefit plans are guaranteed by PBGC. Defined Contribution: A defined contribution plan does not promise a specific benefit at retirement, but does provide regular, set contributions to a pension fund. Defined contribution plans tend to be less expensive than defined benefit plans. Direct Rollover: A tax-deferred transfer of assets from one qualified retirement plan to another qualified retirement plan or IRA, sometimes called a "trustee to trustee" transfer. The transfer is made without any funds being sent directly to the plan participant. Discrimination Testing: All tax qualified retirement plans must be administered in compliance with several regulations to meet Internal Revenue Service guidelines, every tax qualified retirement plan (like a 401k) must pass a series of numerical measurements each year. These include the ADP Test (Actual Deferral Percentage), ACP Test (Actual Contribution Percentage), Multiple Use Test and Top-heavy Test. Typically, doing these tests is called discrimination testing.

4 Designated Roth Contribution: An elective deferral designated as a Roth contribution when contributed to the plan and which is not excludable from gross income. Distributions and Withdrawals: When money is withdrawn from a 401k plan, the withdrawal is referred to as a distribution. 401k plan assets can be withdrawn without penalty after age 59 1/2. Employees are required to begin taking distributions after age 70 1/2. Dollar-Cost Averaging: A process of buying securities at regular intervals and at a fixed dollar amount. When prices are lower, the investor buys more shares or units; when prices are higher, the investor purchases fewer shares or units. Over time, this typically results in a better average price for all shares or units purchased. Elective Deferral: An amount contributed to a 401k plan by an employee. Elective deferrals can be either pre-tax or designated as Roth contributions if the plan has a Roth option. Eligible Automatic Contribution Arrangement: A type of automatic contribution arrangement that may be included in a 401k plan. Under the feature, a participant may elect to receive a one-time distribution of elective deferrals withheld under the automatic contribution arrangement. The arrangement must satisfy a uniformity requirement and a notice requirement. Employer Matching Contribution: The amount, if any, that the employer contributes to the employee's 401k account. Matching contributions are usually configured to provide a set percentage of an employee's contribution up to a fixed limit. Employer Discretionary Contributions: Some employers also make an additional contribution at plan-year end in the form of increased matching contributions and/or a profit sharing contribution. These employer contributions are considered a tax-deductible business expense and also grow on a tax-deferred basis. Enhanced Matching Contribution: A matching contribution under a safe harbor 401k plan that provides each participant with a matching contribution that is greater than the basic matching contribution. ERISA: Employee Retirement Income Security Act or ERISA. This law was passed in 1974 and is a comprehensive package dealing with all areas of pensions and employee benefits, not just 401k plans. ERISA includes requirements on pension disclosure, participation standards, vesting rules, funding, and administration. Exchange Traded Fund (ETF): An Exchange Traded Fund is essentially a passively managed open ended mutual fund. Similar to stock, each ETF has a ticker and is traded on stock exchange. Expense Ratio: The ratio of total expenses to net assets of a mutual fund. Expenses include management fees, 12(b)1 charges, if any, the cost of shareholder mailings and other administrative expenses. The ratio is listed in a fund's prospectus. Expense ratios may be a function of a fund's size rather than of its success in controlling expenses.

5 401k Plan: A tax-deferred retirement plan that can be offered by businesses of any kind. A company's 401k plan can be a "cash election" profit-sharing or stock bonus plan, or a salary reduction plan. A 401k plan carries many unique advantages for both employer and employee. 403(b) Plan: SECTION 403(b) of the Internal Revenue Code allows employees of public school systems and certain charitable and nonprofit organizations to establish tax-deferred retirement plans which can be funded with mutual fund shares. 404(c): Optional regulation on plan sponsor to provide certain information and fund choices so plan participants can make informed decisions about their retirement plan investments. Fiduciary: An individual or an institution charged with the duty of acting for the benefit of another party as to matters coming within the scope of the relationship between them; for example, any person who exercises any discretionary authority or control over the management of a 401k retirement plan or its assets. A fiduciary is to act solely in the interest of plan participants and their beneficiaries. Fixed Match: A matching contribution that is specifically provided for in the plan document and that must be contributed each year unless and until the plan is amended. Fixed-Income Securities: Investments that represent an IOU from the government or a corporation to the investor and offer specific payments at predetermined times. Public and private bonds, government securities, and the 401k's guaranteed accounts, are fixedincome investments. Guaranteed fixed-income accounts offer investors a guarantee against the loss of both principal and the interest earned on that principal. Frozen Plan: A plan under which accruals and/or contributions have ceased, but assets are still held for participants and beneficiaries. Glide Path: The gradual reduction of risk within a portfolio based on the number of years to a target date, achieved by adjusting the allocation of assets to more conservative investments. It is typically used when referring to target-date mutual fund strategies. Guaranteed Investment (interest) Contract (GIC): Debt instrument sold in large denominations issued by Insurance Companies and often bought for retirement plans. The word guaranteed refers to the interest rate paid on the GIC; the principal is at risk. The company issuing the GIC makes the guarantee, not the U.S. Government. Hardship Withdrawal: An in-service distribution from the plan which is made because the participant has suffered severe financial difficulty or an extraordinary event as defined by the plan document.

6 Highly Compensated Employee: A Highly Compensated Employees (HCE) is one who owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or for the preceding year, received compensation from the business of more than $118,500 (if the preceding year is 2017), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation. Income Fund: A common trust fund or mutual fund that primarily seeks current income rather than growth of capital. It will tend to invest in stocks and bonds that normally pay high dividends and interest. Index Fund: A common trust fund or mutual fund that seeks to mirror general stock market performance by matching its portfolio to a broad-based index, most often the Standard & Poor's 500 stock index. Individual Retirement Account (IRA): A personal, tax-sheltered retirement account available to wage earners not covered by a company retirement plan or, if covered, that meet certain income limitations. Individual Retirement Account (IRA) rollover: A provision in the IRA law allowing individuals who receive lump-sum payments from pension or profit-sharing plans to "roll-over" into, or invest that sum in, an IRA. IRA funds can be "rolled-over" from one investment to another. Index: A statistical measure of the changes in a portfolio representing a market. The Standard & Poor's 500 is the most well-known index, which measures the overall change in the 500 most widely traded companies in the United States. In-Service Withdrawal: A withdrawal from a retirement savings plan by a participant who remains employed. In-service withdrawals are severely restricted by law and most plans. o o In-service withdrawals of elective deferrals (employee salary reduction contributions) are prohibited by law prior to age 59 1/2. While allowed by law after that age, most plans do not allow it. In-service withdrawals of employer contributions are allowed under some circumstances prior to age 59 1/2, but most plans prohibit it. Investment Adviser: A person who manages assets, making portfolio composition and individual security selection decisions, for a fee, usually a percentage of assets invested. Keogh Plan: A tax-deferred retirement account for self-employed individuals or employees of unincorporated businesses. Keogh plans can be funded with mutual fund shares. Keogh Plans are also known as H.R. 10 Plans. Key Employee: An employee who at any time during the plan year is meets certain income or ownership criteria.

7 Lifestyle Fund: A mutual fund that maintains an asset allocation based on the expected retirement age of the investor; generally, the investor's portfolio will be shifted into less-risky assets as s/he grows older, or closer to the time when s/he wants to withdraw his investment. Market Index: A market index measures changes in the value of a specific group of stocks, bonds or other investments that it tracks from a specific starting point, which may be as recent as the previous day or some date in the past. An index may be broad, encompassing a large number of stocks or bonds, or quite narrow, including only a limited number. Master/Prototype Plan: A master plan is a plan that is made available by a sponsor for adoption by employers and for which a single funding medium is established for use by all adopting employers. A prototype plan is a plan that is made available by a sponsor for adoption by employers and under which a separate funding medium is established for each adopting employer. Matching Contribution: Employer contributions that are made on account of elective deferrals or employee after-tax contributions. Minimum Contribution: A contribution required to be made to a plan in any year in which it is determined to be top-heavy. Named Fiduciary: The plan document must name one or more fiduciaries (called the "Named Fiduciary") with the duty and the power under ERISA to control, manage and administer the plan. The Named Fiduciary can be an employee of the plan sponsor or an independent party. Non-Discrimination Rules: Rules denying an employer, employee or both the benefit of tax advantages if the plan discriminates in favor of highly compensated or key employees as demonstrated by government-specified tests. Non-Elective Contribution: A type of contribution an employer chooses to make to their employee's retirement plan account regardless of whether the employees makes a contribution to the plan. Non-Highly Compensated Employee (NHCE): This group of employees is determined on the basis of compensation or ownership interest. See Highly Compensated Employees. Non-Qualified Deferred Compensation Plan: A plan subject to tax, in which the assets of certain employees (usually Highly Compensated Employees) are deferred. These funds may be reached by an employer's creditors. Non-Qualified Plan: A pension plan that does not meet the requirements for preferential tax treatment. This type of plan allows an employer more flexibility and freedom with coverage requirements, benefit structures, and financing methods. Participant: An employee who is eligible to either make contributions to the retirement plan or to share in employer contributions to the plan.

8 Participant Contributions: The dollars that employees contribute to their 401k plans. Participant Directed Account: A plan that allows participants to select their own investment options. See Participant Directed Investing. Participant Directed Investing: In this case, the employee decides how to invest his or her funds. It is the company's responsibility to offer a variety of investment opportunities so that the employee can make investments according to his or her long term goals and risk. Plan Administrator: Your 401(k) plan administrator is the person or more typically the company your employer chooses to manage the organization's retirement savings plan. The administrator works with the plan provider to ensure that the plan meets government regulations and that you and other employees have the information you need to enroll, select and change investments in the plan, apply for a loan if the plan allows loans and request distributions. Plan Document: A written instrument under which the plan is established and operated. Plan Fiduciary: Anyone who exercises discretionary authority or discretionary control over management or administration of the plan, exercises any authority or control over management or disposition of plan assets, or gives investment advice for a fee or other compensation with respect to assets of the plan. Plan Sponsor: The entity (generally the employer) responsible for establishing and maintaining the plan. The sponsor is responsible for choosing the plan, the plan provider and the plan administrator, and for deciding which investments will be offered through the plan. Plan Trustee: Someone who has the exclusive authority and discretion to manage and control the assets of the plan. The trustee can be subject to the direction of a named fiduciary and the named fiduciary can appoint one or more investment managers for the plan's assets. Plan Vendor: Companies that administer, service and/or sell 401k plans. They are generally employed by the plan sponsor. Plan Year: The calendar or fiscal year for which plan records are maintained. Profit Sharing Plan: A defined contribution pension plan that uses a variable level of contributions based on company profits. The employer may add up to the annual limit set by Congress to each employee's profit-sharing account in any year the company has a profit to share, though there is no obligation to make a contribution in any year. Prohibited Transaction: Activities regarding treatment of plan assets by fiduciaries that are prohibited by ERISA. This includes transactions with a party-in-interest, including, sale, exchange, lease, or loan of plan securities or other properties. Any treatment of plan assets by the fiduciary that is not consistent with the best interests of the plan participants is a prohibited transaction.

9 Prospectus: The written statement that discloses the terms of a securities offering or a mutual fund. Strict rules govern the information that must be disclosed to investors in the prospectus. You should always read the prospectus on any mutual fund before investing. Prudent Investor Rule: The latest development in evaluating fiduciary prudence. The current (1992) model uniform act differs from the traditional Prudent Man Rule in that it indicates that: (1) no asset is automatically imprudent, but must be suitable to the needs of the beneficiaries, (2) the entire portfolio is viewed when evaluating the prudence of a fiduciary, and (3) certain actions can be delegated to other agents and fiduciaries. ERISA generally follows the approach of the Prudent Investor Rule. Prudent Man Rule: A rule originally stated in 1830 by the Supreme Judicial Court of Massachusetts in Harvard College v. Amory [ 9 Pick. (Mass.) 446 ], that, in investing, all that can be required of a trustee is that s/he conduct her/himself faithfully and exercise a sound discretion and observe how a person of prudence, discretion, and intelligence manage their own affairs not in regard to speculation, but in regard to the permanent disposition of their funds considering the probable income as well as the probable safety of the capital to be invested. The current (1959) model uniform rule categorizes certain types of assets as automatically imprudent, looks at each investment separately in determining prudence, and prohibits the delegation of responsibilities. Most states have adopted the Rule as a part of state fiduciary law, usually with certain different specifics from state to state. Qualified Default Investment Alternative (QDIA): An investment option a plan sponsor may use for 401k plan contributions in the absence of direction from a plan participant. Qualified Domestic Relations Order (QDRO): A judgment, decree or order that creates or recognizes an alternate payee's (such as former spouse, child, etc.) right to receive all or a portion of a participant's retirement plan benefits. Qualified Plan: A private retirement plan that meets the rules and regulations of the Internal Revenue Service. Contributions to such a plan are generally tax-deductible; earnings on such contributions are always tax sheltered until withdrawal. Required Minimum Distribution (RMD): A required minimum distribution is the smallest amount you can take each year from your 401(k), 403(b), traditional IRA or other retirement savings plan once you've reached the mandatory age for making withdrawals, usually 70½. If you take less than the required minimum, you owe a 50 percent penalty on the amount you should have taken. You calculate your RMD by dividing your account balance at the end of your plan's fiscal year usually, but not always, December 31 using a divisor determined by your age. Risk Tolerance: The extent to which an investor will accept risk in the pursuit of a financial reward. The greater an investor's tolerance, the more risk s/he will accept in order to reach their goal.

10 Rollover: An employee's transfer of retirement funds from one retirement plan to another plan of the same type or to an IRA without incurring a tax liability. The transfer must be made within 60 days of receiving a cash distribution. The law requires 20 percent federal income tax withholding on money eligible for rollover if it is not moved directly to the second plan or an investment company. Roth 401k: A 401k feature that allows employees to make elective contributions on an aftertax basis. Withdrawals, generally after age 59½, of any money from the account (including investment gains) are tax-free. Safe Harbor 401k: A safe harbor 401k is similar to a traditional 401k plan, but the employer is required to make contributions for each employee. The safe harbor 401k eases administrative burdens on employers by eliminating some of the complex tax rules ordinarily applied to traditional 401k plans. Salary Reduction Plan: A salary reduction plan, such as a traditional 401(k) or 403(b), is a type of employer-sponsored retirement savings plan that allows you to contribute pretax income to a retirement account in your name and to accumulate tax-deferred earnings. In contrast, with a Roth 401(k) and 403(b) you contribute after-tax income to a retirement account in your name and may make tax-free withdrawals after you retire if you re at least 59½ and your account has been open at least five years. All of these plans, which may be described as salary deferral plans because part of your current salary goes into your retirement account rather than being included in your take-home pay, have the same annual contribution cap, which is set by Congress, and allow annual catch-up contributions for participants 50 and older. Savings or Thrift Plan: A defined contribution plan in which participants make contributions on a discretionary basis with limits and to which employers may also contribute, usually on the basis of fully or partially matching participants' contributions. Contributions are commonly made with after-tax earnings. Service Provider: A company that provides some type of service to a 401k plan, including managing assets, recordkeeping, providing plan education, and plan administration. Summary Plan Description SPD: Summary Plan Description for ERISA employee benefit plans. ERISA requires a Summary Plan Description (SPD) be distributed to each plan participant and to each beneficiary receiving benefits under the plan as follows: For existing plans, a new participant must receive a copy of the SPD within 90 days after becoming a participant, and a beneficiary must receive a copy within 90 days after first receiving benefits. Target Benefit: A target benefit plan is a defined contribution plan that acts much more like a defined benefit plan. Contributions are set for each year, but are variable based on the age of the employee. This allows older employees to receive similarly sized pensions as younger employees despite having less time for investments to grow.

11 Target-Date Fund: A mutual fund type that automatically reduces the risk within its portfolio by resetting the asset mix between stocks, bonds and cash to be more conservative based on the number of years to a target date. Third-Party Administrator: A party hired by a plan or its fiduciaries to aid in performing management and/or recordkeeping functions on behalf of the plan. Transaction Costs: Costs incurred buying or selling securities. These include brokers' commissions and dealers' spreads (the difference between the price the dealer paid for a security and for which he can sell it). Trust: A fiduciary relationship in which one person (the trustee) is the holder of the legal title to property (the trust property) subject to an equitable obligation (an obligation enforceable in a court of equity) to keep or use the property for the benefit of another person (the beneficiary). Vesting: The period of time an employee must work at a firm before gaining access to employer-contributed pension income. For 401k plans, employee contributions are immediately vested, but employer contributions may be vested over a period of several years. Volume Submitter Plan: A type of individually-designed retirement plan that has been preapproved by the IRS.