Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

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401(k) plan - Named after the Internal Revenue Code Section 401(k), this is an employer sponsored retirement plan that permits employees to divert part of their pay into the plan and avoid current taxes on that income. Money directed to the plan may be partially matched by the employer. Investment earnings within the plan accumulate tax-deferred until they are withdrawn.

403(b) plan - Section 403(b) of the Internal Revenue Code permits employees of certain non-profit organizations, such as schools and hospitals, to set up tax-deferred retirement plans. These plans are designed to compensate for the absence of profit-sharing plans at these organizations. Many such plans permit investments in mutual funds or annuities.

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Accrued Benefit - A benefit that an employee has earned (or accrued) through participation in the plan. In a defined contribution plan, such as a 401(k), the participant's accrued benefit is the balance in his individual account at a given time. In a defined benefit plan, the accrued benefit is determined as specified by the plan.

Annuitant - The person who is covered by an annuity and who will normally receive the benefits of an annuity for life or a specified period.

Annuity (or Life Annuity) - A series of periodic payments, usually level in amount or adjusted according to some index (e.g., cost-of-living) that continue for the lifetime of the recipient. In contrast, an installment payment is one of a specific number of payments that will be paid whether or not the recipient lives to receive them.

Asset - Any property that has monetary value. Your personal assets include your house, car, clothes, jewelry, savings and investments.

Asset Allocation - The process of dividing your money between different types of assets, such as stocks, bonds, cash and real estate - in a combination intended to generate the overall return you need, while at the same time minimizing your overall risk.

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Basis - Your cost used in figuring gain or loss when you sell an asset.

Basis Point - A unit of measurement that makes it easy to measure dollar amounts smaller than one percent. One percentage point equals 100 basis points.

Bear Market - A bear market is one that loses value for an extended period of time, typically a year or more.

Beneficiary - A person designated by a participant or one who by the terms of the plan is or may be eligible for benefits under the plan if the participant dies.

Bond - An IOU issued by a corporation or by a government. The bond issuer is borrowing money form you and other members of the public. The bond obligates the issuer to pay a specified amount of interest for a specified time, usually several years, and then repay the bondholder the face amount of the bond.

Bond Fund - A mutual fund that invests primarily in bonds. Commonly referred to as a fixed income investment.

Bull Market - A bull market is one that gains value for an extended period, often several years. Even in a bull market, however, prices fluctuate from day to day.

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Capital Gain (loss) - When you sell an investment for more than you paid, your profit is called a capital gain. If you sell for less than you paid, you have a capital loss.

Certificate of Deposit (CD) - Negotiable interest-bearing certificates by which a bank promises to repay money deposited with it for a specific time period at a specified interest rate.

Collateral - Property that a borrower gives or assigns to a lender as security for a loan. If the borrower defaults (fails to repay), the lender takes the collateral.

Commission -The fee paid to a broker for buying or selling securities or other property.

Common/Collective Trust - An investment trust maintained by a bank, trust company, or similar institution that is regulated, supervised, and subject to periodic examination by a state or federal agency for the collective investment and reinvestment of assets contributed thereto from employee benefit plans.

Common Stock - A security representing a share of ownership in a corporation.

Consumer Price Index (CPI) - A measure of the relative cost of living. The CPI is measured by changes in the cost of a market basket of goods and services.

Corporation - An entity formed by business associates to conduct a business venture and divide profits among investors. It files a charter or articles of incorporation in a state, draws up bylaws, issues stock, and has its affairs managed by a board of directors.

Custodian - The organization (usually a bank or trust company) that holds in safekeeping the securities and other assets of a plan.

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Defined Benefit Plan - Commonly referred to as a pension plan, where benefits rather than contributions into the plan are specified. Pension plans provide a retired employee with a determinable benefit based upon age, years of service, and income.

Defined Contribution Plan - A plan that provides an individual account for each participant and in which benefits are based solely upon the amount contributed to the account (plus or minus any income, expenses, gain, and losses allocated to the account).

Direct Rollover - A distribution to an employee made in the form of a direct trustee-to-trustee transfer from a qualified retirement plan to an eligible retirement plan, i.e., another 401(k) plan or Individual Retirement Account (IRA).

Distribution - Payment from a qualified plan made to a participant or a participant's beneficiary.

Diversification - The practice of spreading investments over several different securities or types of investment vehicles to reduce risk. A fancy way of saying don't put all of your eggs in one basket.

Dividend - Income paid by your investments. Both stocks and bonds can pay dividends. Mutual funds pass the dividends they earn on their investments to their shareholders. In a 401(k) account, these dividends aren't paid to you in cash, but are automatically reinvested to buy more shares for you.

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Employee Stock Ownership Plan (ESOP) - A qualified retirement plan (profit sharing, stock bonus, or money purchase pension plan) in which employees receive shares of stock of the company for which they work.

Equity - Equity refers to ownership or an ownership interest. "Equity" is often used as a synonym for stock - i.e., an equity investor is a stockholder.

ERISA - Employee Retirement Income Security Act of 1974. This is the basic law covering qualified plans and incorporates both the pertinent Internal Revenue Code provisions and labor law provisions.

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Fair Market Value - The price at which a seller is willing to sell and a buyer is willing to buy.

Fiduciary - Any person (individual or corporation) who exercises discretionary authority or control over the management or disposition of plan assets.

Forfeitures - The benefits that a participant loses if he terminates employment before becoming eligible for full retirement benefits under the plan.

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No Terms

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Hardship Withdrawal - An in-service distribution from a qualified retirement plan such as a 401(k), or 403(b) plan, predicated upon a plan participant's immediate and heavy financial need that may be satisfied only by means of the withdrawal.

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IRA - An individual retirement account. IRAs may provide the taxpayer deductions for contributions to the IRA and tax deferrals on the earnings.

IRS - Internal Revenue Service. This is an agency of the Treasury Department, headed by the Commissioner of Internal Revenue, charged with enforcing the tax laws.

Inflation - An increase in the cost of goods and services, most often measured by the Consumer Price Index. When too much money chases too few goods, inflation is the result.

Interest - The amount a borrower pays a lender for the use of the lender's money - for example, mortgage interest, credit card interest, interest on a car loan, etc.

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Joint & Survivor Annuity - An annuity paid for the life of the participant with a survivor annuity for his or her spouse.

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Keogh Plan - A qualified retirement plan, either a defined contribution plan or a defined benefit plan, which covers a self-employed person and his employees.

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Load - The sales charge or commission charged on the purchase of some mutual funds or insurance products.

Lump Sum Distribution - A single payment representing the entire amount due to you from your qualified plan account.

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Margin - Buying a stock or bond on margin means that part of the purchase price is borrowed from a broker; the margin is the amount the customer puts up.

Market Capitalization - A measure of how large a company is. Calculated by multiplying the market price per share times the total number of shares outstanding. For example, at a current price of $25 for each of its 10 million shares of outstanding stock, ABC Company has a market capitalization of $25 times 10 million, or $250 million.

Market Price - The latest price of a security (or other asset) in the market where the security (or other asset) is traded.

Matching Contribution - An employer contribution made to a qualified retirement plan that is given to participants who make an employee contribution. An employer may choose to "match" your contribution and contribute to the plan on your behalf. For example, for every $1 you contribute, your employer may add $.50, up to the first 6% of pay that you contribute. Under this scenario, if you earn $30,000 a year and contribute 6% of your pay to the 401 (k) plan ($1,800 annually), your employer would add $900 to your account.

Maturity - The date when a debt obligation is due to be repaid.

Money Purchase Pension Plan - A defined contribution plan under which the employer is subject to minimum funding requirements. Contributions are usually based on each participant's compensation. Retirement benefits under the plan are based on the amount in the participant's individual account at retirement.

Money Market Fund - A mutual fund that aims at maximum safety, liquidity, and (usually) a constant price for its shares. Its assets are invested to earn current market interest rates on the safest, short-term, highly liquid investments.

Municipal Bond - A bond issued by a state or local government. The interest is usually exempt from federal income tax.

Mutual Fund - An investment that pools the funds of many investors to provide them with professional management, diversification, and other advantages. When you buy shares in a mutual fund, you invest in all stocks, bonds, or other securities held in the fund.

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Net Asset Value - In a mutual fund, the market value of the securities and other assets underlying each share of the fund.

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No Terms

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Pension Benefit Guaranty Corporation (PBGC) - A nonprofit corporation, functioning under the jurisdiction of the Department of Labor, that is responsible for insuring benefits to participants of certain defined benefit plans.

Plan Document - A written document setting forth the terms of an employer sponsored qualified retirement plan.

Plan Sponsor - An employer who establishes and maintains a qualified retirement plan.

Plan Year - Any 12-consecutive-month period identified by the plan for keeping its records. The plan year does not have to coincide with the employer's taxable year or begin on the first day of the month; although it typically does.

Portfolio - The mix and makeup of a person's or a fund's investments.

Preferred Stock - The portion of a corporation's stock having a priority or preference over the common stock in the distribution of dividends and assets.

Prime Rate - The loan rate banks advertise as their best rate; that is, the rate available to their best customers. It is the benchmark for other rates.

Principal - The amount you originally invested. The capital value of an investment, as opposed to the interest or dividends that it pays. Also, the amount of a debt, as opposed to the interest paid on the debt.

Profit Sharing Plan - A defined contribution plan under which the employer makes discretionary contributions (usually out of profits). A participant's retirement benefits are based on the amount in his individual account at retirement.

Prospectus - A legal document that contains all the information the Securities and Exchange Commission says an investor must have in order to make an informed decision about whether or not to buy a stock or shares in a mutual fund. Among other things, a mutual fund prospectus tells you the fund's investment goals and strategy, performance record and fees.

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Qualified Domestic Relations Order (QDRO) - A court order issued under state domestic relations law that relates to the payment of child support or alimony or to marital property rights. A QDRO creates or recognizes an alternate payee's right, or assigns to an alternate payee the right, to receive plan benefits payable to a participant. The alternate payee may be the participant's spouse, former spouse, or dependent.

Qualified Retirement/Pension Plan (Qualified Plan) - A plan that meets the requirements of Internal Revenue Code and, therefore, provides special tax considerations to the plan sponsor, the trust and plan participants.

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Realized Gain (Loss) - The actual gain or loss on a sale of a security or other asset.

Risk - The potential for losing your money or the buying power that money provides. There are many types of risk. Some of the most important ones are interest rate risk, market risk and inflation risk.

Rollover - A tax-free transfer of cash or other assets from one retirement plan to another. An IRA account owner may shift assets from his present IRA to another. Certain payouts from a pension plan may also be rolled over to an IRA or to another employer's retirement plan.

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Salary Reduction (Deferral) Arrangement - Voluntary contributions deducted from an employee's compensation on a pre-tax basis and invested in a qualified retirement plan.

Security - General term meaning stocks, bonds, and other investment instruments.

Share - Any of the equal parts into which the capital stock of a corporation or company is divided.

Stock - A security representing an ownership interest in a corporation.

Summary Plan Description (SPD) - A detailed, but easily understood, summary describing a pension plan's provisions.

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Treasury Bill (T-bill) - A short-term debt security of the U.S. Treasury, issued with a maturity of 3, 6, or 12 months and sold on a discounted basis.

Treasury Bond (T-bond) - A US Treasury debt security with an original maturity of more than 10 years from the date of issuance.

Treasury Note - A US Treasury debt security with an original maturity of 1 to 10 years from the date of issuance.

Trust - A fund established under local trust law to hold and invest the assets of a plan.

Trustees - The parties named in the plan or trust documents that are authorized to hold the assets of the plan for the benefit of the participants. The trustees may function merely in the capacity of a custodian of the assets or may also be given authority over the investment of the assets. Their function is determined by the trust instrument or, if no separate trust agreement is executed, under the trust provisions of the plan.

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Unrealized Gain (Loss) - On a security or other asset that you still own, the gain or loss you would realize if it were sold at current market value. You have an unrealized gain if the current market price is above your cost, an unrealized loss if the current market price is below your cost.

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Vesting - The point in time when a participant has a non-forfeitable right to monies in a qualified retirement plan. Vested benefits belong to an employee independent of his or her future employment. Typical vesting schedules include cliff vesting (100% at 3 years of service) or graded vesting (20% for each year of service), although there are many variations.

Volatility - Degree (both the frequency and amount) to which an investment's price goes up or down.

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No Terms

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No Terms

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Yield - Income from an investment in the form of dividends or interest. It does not include capital appreciation/depreciation.

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No Terms