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Prior to beginning to invest in a 401(k) plan, you should be familiar with several retirement industry terms that will assist you in understanding the rules and regulations of the plan. A few such terms can be found in the glossary below:
- Summary Plan Description (SPD): A document summarizing the terms of a retirement plan in plain language. This summary must be distributed to all participants. All plans covered under ERISA must have a summary plan description.
- Vesting: The process of earning a right (through being employed for a period of time) not to lose or “forfeit” all or a portion of a retirement benefit. If an employee terminates employment before earning a 100% vested right to a benefit, the employee will lose or “forfeit” the unvested portion of the benefit.
- Employee Contributions: The contributions paid by an employee into an employer-sponsored retirement plan. If permitted under the plan, employees may contribute on a pretax or after-tax basis. Pretax contributions are usually funded through payroll deduction into a 401(k), 403(b), or SIMPLE plan. Generally, profit sharing plans, which may or may not include a 401(k) feature, may permit after-tax contributions.
- Employer Contributions: The contributions paid by an employer into an employer sponsored retirement plan. If provided for under the plan, employer contributions may be mandatory (fixed) or discretionary.
If you’d like more details, you may want to contact your employer or retirement plan provider. Visit this link for more information about the 401(k) glossary.
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