Plan Sponsor Quick Tips: The 401(k) Glossary

Each Monday 401kBasics posts a new tip as a part of our series “Plan Sponsor Quick Tips”. This series is designed to assist plan sponsors in filling their fiduciary role and running their retirement plan efficiently. Your feedback or suggestions on future articles is welcome.

Every 401(k) plan administrator should be familiar with several retirement industry terms that will assist him or her in performing his or her required fiduciary responsibilities to operate the plan. A few such terms can be found in the glossary below:

  • Qualified Retirement Plan: Any type of retirement plan afforded special treatment because it meets the requirements set forth in the Internal Revenue Code. (There are also nonqualified retirement plans.)
  • Defined Contribution Plan: A retirement plan providing an individual account for each participant. The participant’s benefit is the balance in the account, which changes over time, based on the amounts contributed, plus or minus any gains or losses in investments. The employer chooses whether or not participants direct the investment of their accounts.
  • 401(k) Plan: A type of defined contribution plan that allows employees to make pretax employee contributions into an account under the plan. The plan may also include an employer match of all or a portion of an employee’s contributions, as well as a standard profit sharing contribution.
  • Plan Document: The written instrument setting forth the terms of retirement plan. Each plan covered by ERISA (Employee Retirement Income Security Act) must have a written plan document.

If you’d like more details, you may want to contact your accountant, tax consultant or financial advisor. Visit this link for more information about the 401(k) glossary.

This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.

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1 Response to Plan Sponsor Quick Tips: The 401(k) Glossary

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