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Your HR Contact

Marietta Fernandes

217.278.7709
Marietta.Fernandes@uoficreditunion.org

Your Plan Advisor

SFG Retirement Plan Svcs.

866.467.6412
401k@sfgweb.com

Your Plan

Plan Options

Plan Options

Eligibility Requirements

All employees, who have completed one hour of service, will be eligible to defer starting on their entry date. All employees, excluding leased and reclassified employees, who have completed 1,000 hours of service during the eligibility computation period, are eligible to enroll after one year of service. You will enroll on the January 1, April 1, July 1, or September 1 following the fulfillment of these requirements.

Contributions

Employee 401(k) Deferrals: You may defer an amount not to exceed the lesser of $18,000 (after 2016 the dollar limit may increase for cost-of-living adjustments) or 100% of your compensation (less applicable taxes). Deferral Change: You may stop deferral contributions at any time. The plan sponsor will determine how often you can modify your deferral amount, however it will be allowed at least annually.

Employer Matching Contributions: Your employer will contribute a safe harbor matching contribution to the plan each payroll period. The safe harbor matching contribution will be 100% of the first 3% of salary deferred, plus 50% of the next 2% of salary deferred. In order to receive the entire safe harbor matching contribution, you must defer at least 5%. The only condition to receive the safe harbor matching contribution is to defer into the plan.

An additional discretionary contribution is also possible. If given, the only condition to receive thematching contribution is to defer into the plan.

Employer: Your Employer may contribute a profit sharing contribution each year to the plan based upon your compensation. In order to receive this contribution, you must complete 1,000 hours of service during the plan year, and be employed by this employer on the last day of the plan year (December 31).

Normal Retirement Age

65 – At this time you become fully vested, if not before.

Withdrawals

You may withdraw the funds in your retirement account under the following circumstances:

  • Retirement, Death, Disability, or Termination of Employment.
  • Age 59-1/2 in sources in which you are 100% vested.
  • Rollover funds may be taken out at any time up to two times per Plan year.
Distribution Date

As soon as administratively feasible following your termination of employment.

Vesting

Employee deferrals (401(k) contributions) are always 100% vested. Safe Harbor Matching contributions are always 100% vested.

Years of
Vesting Service
Vesting
Percentage
Less than 2
0%
2
20%
3
40%
4
60%
5
80%
6 or more
100%

The vesting schedule is accelerated to 100% in the event of death or permanent disability.

Rollovers

Rollovers or transfers are accepted from prior Qualified Plans.

Forfeitures

If an employee terminates before being fully vested, the employer profit sharing and matching portion that the employee is not entitled to is forfeited. Forfeited funds are first used to offset plan expenses and then will be used to reduce the safe harbor contribution.

Loans

Loans from the plan are not available to participants.

Trustees

Greg Anderson; E. J. Donaghey; Jennifer Peyton; and Kim Cheek.

How Do I Enroll?

How Do I Enroll?

  1. Confirm with your HR/Benefits department that you have fulfilled the eligibility requirements. Usually there is an age requirement and a length of service requirement.
  2. Confirm the plan’s entry dates. Most plans allow you to enroll at the beginning of each quarter. However, some plans allow monthly entry dates or semiannual. Check your plan provisions.
  3. Request an enrollment booklet from your HR department if you do not already have one.
  4. Fill out the pages of the enrollment form. Watch your company’s enrollment video to walk you through the forms and how to fill them out.
  5. Sign and date your forms.
  6. Submit your forms to your HR Department.
  7. Monitor your first payroll deduction to make sure that your contributions started correctly.
  8. Check your first account statement to make sure that your investments are correct based on the choices you outlined on the enrollment form. You may also check your account online.
  9. Call Strategic Financial Group occasionally to make sure that you are on the right track or to ask questions.
Forms
Participant Notices

Video Library

Videos

University of Illinois Community Credit Union

Your Video Library

View the videos below to answer any questions you may have about your 401k. If your questions aren’t answered here, feel free to contact your Plan Advisor by clicking the link above.

Videos to Come


Education

Quick Tips

Quick Tips

Get Started

Statistics from Fidelity show that less than 50% of people in their twenties that are eligible to participate in their companies 401(k) plan to contribute. Due to the power of compound earnings, time is an important component of your 401(k) plan. Assuming a 10% annual return, to accumulate approximately $1 million by the age of 65, a 19 year old need only contribute $20 per week. A person waiting until 35 years old has to contribute $100 a week. Additionally waiting until age 45 necessitates a contribution of $300 per week. Get started ASAP.

Matching Contributions = Free Money

Many employers offer some sort of matching contribution. Make sure you know what the match is and get your contributions to at least reach that level. A match of 50 cents for each dollar you contribute translates to a 50% return. You cannot pass up those kinds of investment returns.

DO NOT take premature distributions

Although it can be tempting, taking a distribution costs more than you think. Not only do you pay taxes and a 10% penalty if you are younger than 59 1/2, you lose precious time. You need to think about the amount of money you would have if you stayed invested until retirement. A person in their twenties or thirties could reduce their final value by hundreds of thousands of dollars for a distribution of just $20,000. It may seem right at the time but make sure you understand the ultimate cost.

Increase your Contribution level by at least 1% per year

Remember that 401k investing is about the time value of money and how much is it worth in a future date. Getting your account value to a level where the investment markets can have a greater effect on that value due to the potential of the power of compounding returns is important. For example getting your account to $100,000 increases the potential for greater dollar earnings. In the following example, Bob and Joe both make $35,000 a year and start making contributions of 4% of their salary. They both achieve investment returns of 10% per year. The difference is that Bob increases his contribution by 1% at the beginning of each year until he reaches an 11% contribution level. This small 1% increase makes a significant difference over time.

contribution contribution
Years % Joe % Bob
1 4% $1,540 4% $1,540
2 4% $3,234 5% $3,680
3 4% $5,097 6% $6,291
4 4% $7,147 7% $9,615
5 4% $9,402 8% $13,656
6 4% $11,882 9% $18,487
7 4% $14,610 10% $24,186
8 4% $17,611 11% $30,839
9 4% $20,912 11% $38,158
10 4% $24,544 11% $46,209
15 4% $48,930 11% $100,276
20 4% $88,203 11% $187,350
25 4% $151,454 11% $327,584
30 4% $253,321 11% $553,432

Remember that a 10% return on $10,000 is only $1000, but a 10% return on $250,000 is $25,000. Getting to these higher levels is achieved quickest by increasing your contributions not from the investment returns themselves.

Buy Investments When They Cost less

When the markets are going through a negative period, why do people want to sell? Answer is that they think of their 401k as money. In reality, we own stocks and bonds through mutual funds in these accounts. When investments go down in value we get the chance to purchase more shares for the same amount of money each paycheck, yet we are nervous to buy investments at these levels. Why is it that investments are the only things that people don’t want to buy at a discount? Your goal should be to lower risk by selling mutual funds holding stocks when markets are closer to tops of market cycles and when it’s time to lower your risk level as you approach retirement.

Risk equals movement

Buying diversified mutual funds that own many stocks and bonds lowers the risk of your 401k account value from going to zero. Why? Because stocks generally only become worthless when companies go out of business. Most people own hundreds, even thousands of stocks in their account through the mutual funds held in their account. Therefore, risk translates to movement up and down in the value of your investments. The goal is to reduce the amount of movement as you get close to retirement and start taking distributions. That’s why it is prudent to lower risk as you get closer to retirement and your account balance becomes significant. So until you get within 10 years of retirement, try to get comfortable with movement in the value of your investments. Historically in the long run it pays off.

Questions & Answers

Questions & Answers

What is a 401(k) plan?

Employer-sponsored retirement plans are generally grouped into two major categories: defined benefit (DB) and defined contribution (DC). In a DB plan, the employer promises to pay a defined amount to retirees who meet certain eligibility criteria. In other words, the plan defines the benefit to be received. In its most typical form, a DB plan pays a lifetime monthly benefit to retirees who fulfill specific age and service requirements. Benefits are usually linked to the amount of service and based on final average salary. Employees can reasonably rely on a known and expected benefit level; although protection against post-separation inflation is usually limited and/or uncertain. The plan sponsor may also provide an alternative lump-sum “cash-out” of the benefit entitlement. Until relatively recent times, the DB was the dominant form of employer-sponsored retirement program. In DC plans, the plan defines the contributions that an employer can make, not the benefit that will be received at retirement. The terminating employee receives the proceeds in a current or deferred lump sum or annuity. Since the benefit is not defined, the retirement outcomes are not known in advance. In 1978, section 401k of the Internal Revenue Code authorized the use of a new type of defined contribution plan that allows for the employee to make pre-tax contributions to the plan.

How does a 401(k) plan work?

Employee 401(k) contributions are automatically deducted from their paycheck each pay period. This money is taken out before the employees’ paycheck is taxed. The contributions are invested at the employees’ direction into one or more funds provided in the plan. Employers often “match” employee contributions, but are not required to do so. While the investments grow in the employees 401k account, they do not pay any taxes on it.

What are the advantages and benefits of a 401(k) plan?

401(k) plans offer many benefits including the following:

  • Any business, whether a C Corporation, S Corporation, partnership, sole proprietorship, self-employed can establish Plan.
  • The company sets the eligibility requirements, within certain guidelines, at the time the plan is established.
  • Employer can restrict individuals with less than 1 year service, union members, non US citizens, part-time workers, etc., from being eligible for the plan.
  • Contributions to plan can come from voluntary employee salary reduction, from employer, or both.
  • Each individual employee can defer in 2015 & 2016 up to $18,000 or 100% of compensation, whichever is less.
  • Participants age 50 and over can make additional “catch-up” contributions of $6,000 in 2015 & 2016.
  • Employees are immediately 100% vested with their own salary reduction tax deferred contributions.
  • Employee withdrawals before age 59 1/2 may be subject to 10% penalty.
  • Employees, who retire any time during the calendar year in which they turn 55, or later, are not subject to the 10% penalty.
  • Employers can establish a vesting schedule, within certain guidelines, for the contribution the company makes to the 401k.
  • Employers are not required nor obligated to make any contribution to the 401k, although employer may have some obligation to contribute if plan is deemed top heavy.
  • Turnkey and Internet-based plans are available.
  • Excellent range of investment options available for the plan sponsor to offer within the plan.
  • The investment choices in most plans range from 8 to 20 options. The average plan has about 15.
  • 401k plans may permit “self-directed investment accounts” and company stock purchase within the plan.
  • Employee contributions to the plan are not subject to federal income taxes until a distribution from the plan is made. Any investment gains and earnings also enjoy tax deferral until distribution.
  • This type of plan can permit loans and hardship withdrawals.
  • Participants can start, stop contribution during course of year, as determined by the company.
  • The employer can receive certain tax benefits for contributions.
  • Plans are subject to top heavy and discrimination testing.
  • Typically the amount the owners and highly compensated individuals can contribute to a 401(k) is a function of the contributions of the other employers.
  • 401(k) plans can be subject to IRS 5500 filings.
  • Generally, the vendor selected by the plan sponsor does all accounting, participant reporting, testing, and files 5500 reports with the IRS.

401(k) plans have proven to be popular with employees for several reasons. The tax deferral is obviously high on this list of reasons. Others include the increased portability of this plan, employer matching contributions, and the increased control associated with self-direction of investments.

What makes a good 401(k)?

Since your 401(k) plan is one of your most important retirement savings vehicles, you want it to be as good as possible. Here are the features that we think make a really good 401(k) plan. How does your plan compare?

  • Immediate eligibility
  • Valued daily
  • Generous Employer match
  • Maximum contribution can be made each year, i.e., the plan places no restrictions on the amount
  • Low expenses or the plan sponsor pays most fees
  • Both internet and voice access for checking performance, balance, making changes, etc.
  • Name brand no-load mutual funds as investment options are offered
  • At least 12 investment options available, including both passive (index) and active investment (actively managed) funds
  • Loans and hardship withdrawals available
  • Newsletters, fund prospectus, investment performance information and some type of education seminar and/or advice product offered

What are the rules regarding hardship withdrawals from my 401k?

Like loans, hardship withdrawals are allowed by law, but your employer is not required to provide for them in your plan. Again, most companies do, but some don’t. The cost of administering such a program can be prohibitive for many small companies. Check with your Human Resources department if you’re not sure if your plan allows hardship withdrawal. Like loans, your employer must adhere to some very strict and detailed guidelines.

The IRS code that governs 401k plans provides for hardship withdrawals only if:

  1. The withdrawal is due to an immediate and heavy financial need.
  2. The withdrawal must be necessary to satisfy that need (i.e. you have no other funds or way to meet the need).
  3. The withdrawal must not exceed the amount needed by you.
  4. You must have first obtained all distribution or nontaxable loans available under the 401k plan.
  5. You can’t contribute to the 401k plan for six months following the withdrawal.

The following items are considered by the IRS as acceptable reasons for a hardship withdrawal:

  1. Un-reimbursed medical expenses for you, your spouse, or dependents.
  2. Purchase of an employee’s principal residence.
  3. Payment of college tuition and related educational costs such as room and board for the next 12 months for you, your spouse, dependents, or children who are no longer dependents.
  4. Payments necessary to prevent eviction of you from your home, or foreclosure on the mortgage of your principal residence.
  5. As of January 1, 2006, you will also be able to make a hardship withdrawal for funeral expenses and repair of a primary residence.

Hardship withdrawals are subject to income tax and, if you are not at least 59 1/2 years of age, the 10% withdrawal penalty. You do not have to pay the withdrawal amount back.

What are the general rules regarding loans from a 401(k)?

The rules governing 401(k) plans allow plans to provide loans, but do not mandate that an employer make it a plan feature. Even so, loans are a feature of most 401(k) plans. Check with your Human Resources department if you’re not sure if your plan allows loans. If offered, your employer must adhere to some very strict and detailed guidelines on making and administering them.

Most of the time loans are only allowed for the following reasons:

  1. To pay education expenses for you, spouse, or child.
  2. To prevent eviction from your home.
  3. To pay un-reimbursed medical expenses.
  4. To buy a first-time residence. You must pay the loan back over five years, although this can be extended for the first-time home purchase.

Usually you are allowed to borrow up to 50% of your vested account balance to a maximum of $50,000 (set by law). Because of the cost, many plans will also set a minimum amount and restrict the number of loans you can have outstanding at any one time.

If loans are available in your plan, they are pretty easy to get. No credit check is required. Contact your Human Resources department on how to apply. Loan payments will generally be deducted from your payroll checks and, if married, you may need your spouse to consent to the loan.

Funds obtains from a loan are not subject to income tax or the 10% early withdrawal penalty. If you should terminate your employment, often any unpaid loan will be distributed to you. This distribution will be subject to income tax and, if you are not at least 59 1/2 years of age, the 10% withdrawal penalty. A loan can’t be rolled into an IRA.

Do you pay income tax twice when you take out a 401(k) plan loan?

It is often claimed that one of the reasons that you should not take out a 401k plan loan is that you will pay income tax twice on the amount: first the loan payments are made with after-tax income (that’s once) and, second, when you take those payments out as a distribution at retirement (that’s twice). This is incorrect; you do not pay any more taxes on a 401k loan than you would on any other type of loan. Think about it. You will be paying off the non-401k loan with after-tax income (that’s once) and your contributions and earnings in your 401k (you will have the dollars invested in something since you have not borrowed them) will be taxed at distribution (that’s twice). The taxation is exactly the same whether you borrow from you 401k or from another source.

The real cost is a possible opportunity loss, i.e., you may be able to earn more investing the dollars than you will from the loan interest over the life of the loan. Plus, there is the danger that if you lose or leave your job, the remaining loan balance is going to become taxable income unless you can pay it off.

I still have a 401(k) account with my former employer. I would like to transfer this account into my IRA. Can this be done? If so, are there any penalties?

Not a problem. Simply contact your former employer and ask for the necessary form(s) to complete what is generally called a “trustee-to-trustee” transfer into an IRA. Open your new IRA before the transfer so that you can provide the account information on the forms. There are no penalties, but if you allow your former employer to send the funds directly to you and not to your new IRA, they will be required to deduct and remit 20% of the total to the IRS – so don’t let this happen.

What distributions from a 401(k) are not subject to the 10% early withdrawal penalty?

There are only a couple of situations where the IRS will waive the 10% early withdrawal penalty:

  1. Your unreimbursed medical costs exceed 7.5% of your income.
  2. There is a qualified domestic Relations Order (QDRO) from the courts that mandate funds from your account go to a former spouse, child, or dependent.
  3. You’ve separated from service and were at least 55 years of age when you did so.
  4. You have elected a Section 72(t) retirement distribution.
  5. You are totally disabled.
  6. You have died and your beneficiary gets the money.

Our company is getting a new 401k plan. We would like to take what we have in our old 401(k) and roll them into an IRA so we can invest it ourselves. We have been told that we cannot do this and the lump sum must be rolled over into the new plan. Is this true?

Yes, the information you were provided is correct. The regulations governing 401(k) plans do not allow you to rollover your assets into an IRA unless you have terminated employment. So, short of quitting or being terminated, you will have to keep your funds in the new 401(k).

I want to retire before age 59 1/2. How do I avoid the 10% early distribution penalty on retirement payments from my 401(k)?

If you want to retire before age 59 1/2 and begin taking distributions from your 401(k) plan, you will generally be subject to a 10% early distribution penalty. The early distribution penalty is the cornerstone of the government’s campaign to discourage us from plundering our savings before our golden years.

Of course, with the strong markets, many of us are able to retire before 59 1/2 and we would like to begin getting at our nest egg to do so. Luckily, there are a couple of ways to do this without paying the 10% penalty.

What if I leave my job at or after age 55?

If you are retiring from the company that is sponsoring your plan and you are at least 55 at retirement, you can begin to withdraw monthly income from your 401(k) with no penalty. You will owe income tax on the amount. You will need to check with your companies’ benefits administrator for details. Your employer is also required to give you a “Summary Plan Description” (SPD) annually and upon request. The SPD should also address early retirement options in your 401(k) plan. If you rollover your 401(k) into an IRA, this option is not available to you.

What is the Substantially Equal Periodic Payment exception?

The substantially equal periodic payment exception is available to anyone with a 401(k) plan, regardless of age, which makes it an attractive escape hatch. It is called a Section 72(t) distribution. In a 72(t) withdrawal, the distributions must be “substantially equal” payments based upon your life expectancy. Once the distributions begin, they must continue for a period of five years or until you reach age 59 1/2, whichever is longest. The full rules and life expectancy tables can be found in IRS Publication 590. This option generally gives you the least retirement pay out available.

These two exceptions are only relevant if you are younger than 59 1/2, since there is no penalty for withdrawals over this age.

I have a 401(k) account at my former employer. If I needed to get access to the cash, what are my options?

As a former employee, you can request the distribution of your 401(k) assets at any time. Simply contact your former employer and ask for the forms necessary to make a lump-sum withdrawal. Your former employer will be required to withhold and remit 20% of the amount to the IRS as a “down payment” on income taxes. Further, if you are not at least age 59 1/2, you may owe a 10% early withdrawal penalty.

What is the maximum amount of money I can contribute to my 401k annually? Does the amount increase each year?

Elective deferral limit for 2015 is $18,000. Each year the maximum is then indexed in $500 increments. But this can be reduced based upon plan restrictions and government regulations. In addition, there are special non-discrimination rules to prevent highly compensated employees (HCE) from being able to save substantially more than lower paid employees.

Employees that have reached 50 years old may make an additional contribution of $6000 which is considered a “catch up” contribution.

What information is my employer required to give me on my 401(k)?

Your employer must provide you with a Summary Plan Description (also called an SPD) and an annual statement of your account information. You also have a legal right to ask the plan administrator for the plans latest Form 5500 or Form 5500-C/R. You also have the right to ask for a copy of the summary plan description, the plan document, the trust agreement setting up the plan, if separate from the plan, and any collective bargaining contract, if appropriate, any other instrument under which the plan was established or is operated. Make all requests for plan documents in writing. You may have to pay reasonable copying costs. In addition, you will often be provided a prospectus for every fund offered in the plan, but this is not legally required. If your company’s stock is offered in the plan you are required to receive a prospectus on the company stock fund.

If I contribute to my 401(k) plan, can I still contribute to an IRA?

Yes, when you are an active participant in a retirement plan at work, you may still contribute up to the maximum to a traditional IRA but the contributions may not be fully deductible depending upon the level of your income.

Does my employer have to provide a matching contribution?

No, a company has complete discretion as to whether or not they match your contribution. The match is a form of profit sharing. If your employer is not highly profitable, or if times are tough, they may elect to not match the contributions. The existence of a company match should not keep you from contributing to your 401(k).

If I borrow money from my 401(k) to purchase a home, is the interest I pay back to my 401(k) deductible as mortgage interest on my 1040?

The interest you pay on money you borrow from 401(k) plan to buy a home is not deductible as mortgage interest, because the loan is not secured by the home. The mortgage must be a secured debt on a qualified home. Your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. The term “qualified home” means your main home or second home. For details, refer to IRS Publication 936, Home Mortgage Interest Deduction.

What happens if I inherit someone else’s 401(k) account?

A distribution of a 401(k) account to a beneficiary is considered income, and the recipient must pay income tax on it. In addition, the total account is included in the estate of the deceased and is therefore also subject to estate tax. The combination of income and estate taxes can easily take 70 percent or more of the account. Under most circumstances, a spouse may be permitted to roll the money over to an IRA, but a professional tax advisor should be consulted on this point. There are legal requirements that generally force a non-spouse beneficiary to take the money out of the 401(k). A non-spouse beneficiary is not allowed to roll over an inherited 401(k) to his or her own 401(k) or an IRA. The rationale for these restrictions is that 401(k) tax breaks are designed to help workers build funds for retirement, not to build an estate that will pass to heirs without tax.

How soon does my employer have to deposit my contributions deducted from my pay into my 401(k) account?

The regulations require that participant contributions to a 401(k) be deposited to the plan on the earliest date that they can be reasonably segregated from the employer’s general assets, but in no event later than the 15th business day of the month following the month in which the participant contributions are deducted from their pay. What this doesn’t mean is that they can wait until the 15th business day of the month following the month in which your contribution was deducted just for the convenience of doing so. The Department of Labor DEMANDS that if the employer can segregate and deposit the contributions into the plan prior to this deadline, IT MUST DO SO or face a fine. The DOL’s position on plan assets has been made clear: funds must be deposited as soon as they can reasonably be segregated. The preamble to the DOL regulations specifically states that the 15th day of the following month is not a safe harbor, and thus “for many plans, participant contributions will become plan assets well in advance of the applicable maximum period.”

Source: http://www.401khelpcenter.com

Glossary

Glossary

12(b)1 Fees
A plan that permits a fund to pay some or all of the costs of distributing its shares to the public. Some of these plans provide for payment of specific expenses, such as advertising, sales literature and dealer incentives. Others are simply intended to protect the fund against possible claims that certain operating expenses, such as administrative or advisory costs, constitute indirect forms of distribution expenses. Both load and no-load funds may adopt 12(b)1 plans. They are not hidden charges, but are clearly explained in the fund’s prospectus and in its semi-annual and annual reports. Many funds have 12(b)1 plans that have not been activated. The majority of such plans have maximum annual charges of 0.25% (one quarter of 1%). 12(b)1 charges are included in the total expense ratio figures which are provided in a fund’s literature. Some fund’s expense ratios, including management fee and 12(b)1 charges, may be lower than the ratios of funds that do not have 12(b)1 plans.

401(k) 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.

Accrued Interest
The amount credited to a bond or other fixed-income security between the last payment and when the security is sold, or any intermediate date. The buyer usually pays the seller the security’s price plus the accrued interest.

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.

Annuity
A contract by which an insurance company agrees to make regular payments to someone for life or for a fixed period.

Appreciation
Increase in the value of an investment over time.

Ask price
The price a seller is willing to accept for the security; also called the offer price. This price is usually higher than the Bid price.

Asset allocation
Dividing your investment portfolio among the major asset categories. The most important decision you will make.

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 the

Asset
A resource that has economic value to its owner. Examples of an asset are cash, accounts receivable, inventory, real estate, and securities.

Automatic 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 w

Balance sheet
The firm’s financial statement that provides a picture of its assets, debts, and net worth at a specific point in time.

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.

Beta
A measure of a stock’s risk relative to the market, usually the Standard & Poor’s 500 index. The market’s beta is always 1.0; a beta higher than 1.0 indicates that, on average, when the market rises, the stock will rise to a greater extent and when the ma

Bid price
The price a buyer is willing to pay for a security. This price is usually lower than the Ask price.

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 c

Bond
A certificate of debt issued by a company or the government. Bonds generally pay a specific rate of interest and pay back the original investment after a specified period of time.

Book value per share
The accounting value of a share of common stock. It is determined by dividing the net worth of the company (common stock plus retained earnings) by the number of shares outstanding.

Bundled Plan
A 401(k) 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.

Business and industry risk
Uncertainty of an investment’s return due to a fall-off in business that is firm-related or industry-wide.

Buy-and-hold
A strategy in which the stock portion of your portfolio is fully invested in the stock market at all times.

Call option
The right to purchase stock at a specified (exercise) price within a specified time period.

Callable bond
A bond that can be redeemed by the issuer prior to its maturity. Usually a premium is paid to the bond owner when the bond is called.

Capital gain
An increase in the value of a capital asset such as common stock. If the asset is sold, the gain is a “realized” capital gain. A capital gain may be short-term (one year or less) or long-term (more than one year).

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 pl — missing text here —

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.

Certificate of Deposit
A bank deposit that pays a specified rate of interest for a certain period of time.

Churning
The unethical and excessive trading of a client account in order to generate commissions for a broker, but which may not in the best interests of the client. Not only does the client pay high commissions, they also gets stuck with a high tax bills due to the short-term holding of assets.

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.

Commission
Broker’s fee for buying or selling securities.

Common Stock
An investment representing ownership interest in a corporation.

Compliance testing
Testing required by the IRS to make sure that the 401k plan is fair to both highly compensated and ordinary employees.

Compounding
The ability of an asset to generate earnings that are then reinvested and generate their own earnings (earnings on earnings).

Conversion premium
The amount, expressed as a dollar value or as a percentage, by which the price of the convertible security exceeds the current market value of the common stock into which it may be converted.

Current ratio
Current assets, including cash, accounts receivable and inventory, divided by current liabilities, including all short-term debt. A rough measure of financial risk: the smaller current assets relative to current liabilities,the greater the risk of credit failure.

Current yield
Annual income (interest or dividends) divided by the current price of the security. For stocks, this is the same as the dividend yield.

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.

Cyclical industry
An industry, such as automobiles, whose performance is closely tied to the condition of the general economy. The company (and their stock) do well during good economic times, and not as well during poor economic times.

Debt-to-equity ratio
Long-term debt divided by stockholders’ equity. The ratio identifies the relationship of debt to ownership interest in the firm’s financial structure. A measure of financial risk.

Deep discount bond
A bond that has a coupon rate far below rates currently available on investments and whose value is at a significant discount from par value.

Default risk
The risk that a company will be unable to pay the contractual interest or principal on its debt obligations.

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.

Deflation
The increase of purchasing power due to a general decrease in the prices of goods and services.

Depreciation
Decrease in the value of an investment over time.

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.

Discount Bond
A bond that is valued at less than its face amount.

Discount Broker
A stockbroker who charges a reduced commission and provides no investment advice.

Discount Rate
The interest rate used in discounting future cash flows; also called the “capitalization rate.”

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.

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.

Diversification
The practice of spreading risk by investing in a number of securities that have different return patterns over time. When one investment is yielding a low or negative rate of return in a diversified portfolio, another investment may be enjoying positive or above-normal returns.

Dividend
Payments by a company to its stockholders. A dividend is usually a portion of profits. Payment of dividends on common stock is generally discretionary. Dividends to common-stock shareholders may be withheld if business is poor or if the corporation’s directors decide to retain earnings to invest in business operations.

Dividend payout ratio
Annual dividends per share divided by annual earnings per share.

Dividend yield
Annual dividends per share divided by price per share. An indication of the income generated by a share of stock. The dividend yield plus capital gains percentage equals total return.

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.

Dow Jones Industrial Average (DJIA)
Price-weighted average of 30 actively traded blue-chip stocks, traditionally of industrial companies.

Earnings multiplier
An estimated price-earnings ratio adjusted for the current level of interest rates. Used to determine the value of a stock, based on Graham’s formula relating value to recent earnings and expected earnings growth rates.

Earnings per share
The net income of the firm divided by the number of common stock shares outstanding.

Earnings yield
Earnings per share for the most recent 12 months divided by market price per share. Relates the generation of earnings to share price. It is the inverse of the price-earnings ratio.

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.

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.

Equities
Investments in which the investors obtain a portion of ownership. Real estate and common stocks represent equity instruments. Usually, their chief benefit is potential growth in value. It is another word for stock.

Equity risk premium
An extra return that the stock market must provide over the rate on Treasury bills to compensate for market risk.

ERISA
Employee Retirement Income Security Act. ERISA, passed in 1974, is a comprehensive package dealing with all areas of pensions and employee benefits. ERISA includes requirements on pension disclosure, participation standards, vesting rules, funding, and administration. ERISA also mandated the creation of PBGC.

Excess returns
Returns in excess of the risk-free rate or in excess of a market measure such as the S&P 500 index.

Expected return
The average of a probability distribution of possible returns.

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.

Face value
The stated principal amount of a debt instrument.

Fiduciary
An individual or a 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. The relationship between a guardian and his ward, an agent and his principal, an attorney and his client, one partner and another partner, a trustee and a beneficiary, a person who exercises discretionary control or authority over management of a benefit plan, each is an example of fiduciary relationship.

Fiscal Year
An accounting period consisting of 12 consecutive months.

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 fixed-income investments. Guaranteed fixed-income accounts offer investors a guarantee against the loss of both principal and the interest earned on that principal.

Fundamental analysis
This valuation of stocks based on fundamental factors, such as company earnings, growth prospects, and so forth, to determine a company’s underlying worth and potential for growth.

GNMA (Ginnie Mae)
Fixed-income securities that represent an undivided interest in a pool of federally insured mortgages put together by GNMA, the Government National Mortgage Association.

Going public
Selling privately held shares to new investors for the first time.

Gross domestic product (GDP)
A measure of output from United States factories and related consumption in the United States. It does not include products made by U.S. companies in foreign markets.

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.

Highly Compensated Employee
A Highly Compensated Employees (HCE) is an employee who received more than $110,000 ($105,000 in 2008) in compensation during the last plan year OR is a 5% owner in the company.

Holding period return/yield
Income plus price appreciation during a specified time period divided by the cost of the investment.

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 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. o In-service withdrawals of employer contributions are allowed under some circumstances prior to age 59 1/2, but most plans prohibit it.

Income Dividend
Payment of interest and dividends earned on a fund’s portfolio of securities after operating expenses are deducted.

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.

Income statement
The financial statement of a firm that summarizes revenues and expenses over a specified time period; a statement of profit and loss.

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 value of the 500 stocks of the largest firms in the U.S.

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, 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.

Inflation
The loss of purchasing power due to a general rise in the prices of goods and services.

Inflation risk
Uncertainty over the future real (after-inflation) value of your investment.

Insider trading
Trading by management or others who have special access to unpublished information. If the information is used to illegally make a profit, there may be large fines and possible jail sentences.

Integration
A pension design tool in which contributions reflect the existence of Social Security benefits. In this process, FICA taxes are considered part of the contribution to the pension fund. Since Social Security provides a greater percentage benefit to lower paid employees, integration allows the company to increase contributions to higher paid employees.

Interest
What a borrower pays a lender for the use of money. This is the income you receive from a bond, note, certificate of deposit, or other form of IOU.

Investment adviser
A person who manages assets, making portfolio composition and individual security selection decisions, for a fee, usually a percentage of assets invested.

Junk bond
Bond purchased for speculative purposes. They are usually rated “BB” and lower, and they have a higher default risk.

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. (Also know as H.R. 10 Plans.)

Lagging indicator
Economic indicator that changes directions after business conditions have turned around.

Leading indicator
Economic indicator that changes direction in advance of general business conditions.

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.

Limit order
An order placed with a broker to buy or sell at a price as good or better than the specified limit price.

Liquidity
The degree of ease and certainty of value with which a security can be converted into cash.

Margin
The use of borrowed money to purchase securities (buying “on margin”).

Market capitalization
Number of common stock shares outstanding times share price. Provides a measure of firm size.

Market order
An order placed with a broker to buy or sell a security at whatever the price may be when the order is executed.

Market risk
The volatility of a stock price relative to the overall market or index as indicated by beta.

Market sentiment
The feeling, sentiment, or tone of a market. This is usually shown by the activity or price movement of the securities represented within the market. For example, a bullish market sentiment would be indicated by rising prices and strong demand for securities, while a bearish sentiment would be indicated by falling prices and a lack of demand for securities.

Market timing
Attempting to leave the market entirely during downturns and reinvesting when it heads back up.

Maturity
The length of time until the principal amount of a bond must be repaid.

Money Market Fund
A common trust fund or mutual fund that aims to pay money market interest rates. This is accomplished by investing in safe, highly liquid securities, including bank certificates of deposit, commercial paper, U.S. government securities and repurchase agreements. Money funds make these high interest securities available to the average investor seeking immediate income and high investment safety.

Money Purchase Pension Plan (MPPP)
A defined contribution plan in which employer contributions are usually determined as a percentage of pay. Forfeitures resulting from separation of service prior to full vesting can be used to reduce the employer’s contributions or be reallocated among remaining employees.

Mutual Fund
An open-end investment company that buys back or redeems its shares at current net asset value. Most mutual funds continuously offer new shares to investors.

NASDAQ
National Association of Securities Dealers Automated Quotations System. This is a computerized system that provides up-to-the-minute price quotations on about 5,000 of the more actively traded over-the-counter stocks.

Net Asset Value (NAV)
The current market worth of a mutual fund share. Calculated daily by taking the funds total assets securities, cash and any accrued earnings deducting liabilities, and dividing the remainder by the number of shares outstanding.

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-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.

Odd lot
A transaction involving fewer shares than in a “round” lot, which for most stocks is 100 shares.

Over-the-counter market
A communications network through which trades of bonds, non-listed stocks, and other securities take place. Trading activity is overseen by the National Association of Securities Dealers (NASD).

Overbought
A security, usually a stock, that has had a sharp rise, usually as a result vigorous buying, making prices too high. This is the opposite of being oversold.

Oversold
A security, usually a stock (also sometimes a whole market), believed to have declined to an unreasonable level due to vigorous selling. This is the opposite of being overbought.

Par value (bond)
The face value of a bond, generally $1,000 for corporate issues, with higher denominations for many government issues.

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.

Payout ratio
Dividends per share divided by earnings per share. Provides an indication of how well earnings support the dividend payments. The lower the ratio, the more secure the dividend.

PBGC
Pension Benefit Guarantee Corp. The PBGC is a guarantee fund, established by ERISA, which covers all defined benefit pension plans. Companies with a defined benefit plan must pay premiums into this fund according to the number of employees in the plan and the current ratio of assets to liabilities in the plan.

Plan Administrator
The individual, group or corporation named in the plan document as responsible for day to day operations. The plan sponsor is generally the plan administrator if no other entity is named.

Plan Sponsor
The entity (generally the employer) responsible for establishing and maintaining the plan.

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.

Portability
This occurs when, upon termination of employment, an employee transfers pension funds from one employer’s plan to another without penalty.

Portfolio
The group of individual securities held by a person or an institution.

Premium bond
A bond that is valued at more than its face amount.

Present value
The value today of a future payment, or stream of payments, discounted at some appropriate interest rate.

Price-earnings ratio (P/E)
Market price per share divided by the firm’s earnings per share. A measure of how the market currently values the firm’s earnings growth and risk prospects.

Price-to-book ratio
Market price per share divided by book value (tangible assets less all liabilities) per share. A measure of stock valuation relative to net assets. A high ratio might imply an overvalued situation; a low ratio might indicate an overlooked stock.

Principal
The original amount of money invested or lent, as distinguished from profits or interest earned on that money.

Profit margin
Net earnings after taxes divided by sales. Measures the ability of a firm to generate earnings from sales.

Profit sharing plan
A defined contribution pension plan that uses a variable level of contributions based on company profits. Profit sharing plans allow firms to limit allocations to a pension fund in lean years. However, they suffer from lower maximum deduction limits than standard plans.

Program trading
Computer-based trigger points are established in which large volume trades are indicated. The technique is used by institutional investors.

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.

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.

Put option
The right to sell stock at a specified (exercise) price within a specified period of time.

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.

Real rate of return
The annual percentage return realized on an investment, adjusted for changes in the price level due to inflation or deflation.

Relative strength
Price performance of a stock divided by the price performance of an appropriate index over the same time period. A measure of price trend that indicates how a stock is performing relative to other stocks.

Required rate of return
The rate of return demanded to induce investors to invest in a security.

Retention ratio
The percent of earnings retained in the firm for investment purposes.

Return
Consists of income plus capital gains (or losses) relative to investment.

Return on equity (ROE)
A ratio calculated by dividing common stock equity (net worth) at the beginning of the accounting period into net income for the period after preferred stock dividends, but before common stock dividends. ROE tells common stockholders how effect their money is being employed.

Revenue bond
A municipal bond supported by the revenue from a specific project, such as a toll road, bridge, or municipal coliseum.

Risk
Possibility that an investment’s actual return will be different than expected; includes the possibility of losing some or all of the original investment. Measured by variability of historical returns or dispersion of historical returns around their average return.

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.

Risk/return trade-off
The balance an investor must decide on between the desire for low risk and high returns, since low levels of uncertainty (low risk) are associated with low potential returns and high levels of uncertainty (high risk) are associated with high potential returns.

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.

Round lot
The basic trading block for stocks–usually 100 shares.

Salary Reduction Plan (Cash or Deferred Arrangement)
A CODA is a defined contribution plan that allows participants to have a portion of their compensation (otherwise payable in cash) contributed pre-tax to a retirement account on their behalf. They include 401k, 403b and 457 plans.

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.

Secondary market
A market in which an investor purchases an asset from another investor rather than the issuing corporation. An example is the New York Stock Exchange.

Security Lending
A practice where owners of securities, either directly or indirectly, lend their securities to (primarily) brokerage firms for a fee. The borrower pledges either cash, securities or a letter of credit to protect the lender. Securities are borrowed by cover fails of deliveries or short sales, provide proper denominations, and enable brokerage firms to engage in arbitrage trading activities.

Short sale
A market transaction in which an investor sells borrowed securities in anticipation of a price decline. If the seller can buy back that stock later at a lower price, a profit results. If the price rises, however, a loss results.

Socially Responsible Investing
An investments strategy that only purchases securities of individual companies that espouse some form of social responsibility, e.g., “green” funds that target investments reflecting environmental awareness.

Soft Dollars
The purchase of research materials from brokerage firms and paid for by commissions (or part of the commissions) generated by securities transactions of trust accounts. Covered by Section 28(e)(1) of the Securities Exchange Act of 1934. Opposed to this is the purchase of materials by “hard dollars”, which is when payment is made by the trust department itself, typically by issuing a check.

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.

Standard & Poor’s 500 index
An index of 500 major U.S. corporations. It is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The index tracks industrial, transportation, financial, and utility stocks. The composition of the 500 stocks is flexible and the number of issues in each sector vary.

Stock dividend
A dividend paid in additional shares of stock rather than in cash.

Stock split
The division of a company’s existing stock into more shares. In a 2-for-1 split, each stockholder would receive an additional share for each share formerly held and the price would be split in half.

Stockbroker
An agent who for a commission handles the public’s orders to buy and sell securities.

Stockholders’ equity (book value)
An indication of how well the firm used reinvested earnings to generate additional earnings.

Stop-limit order
An order placed with a broker to buy or sell at a specified price or better after a given stop price has been reached or passed.

Stop-loss order
An order placed with a broker to buy or sell when a certain price is reached; designed to limit an investor’s loss on a security position.

Summary Plan Description
See “SPD”.

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.

Tax Free Rollover
Provision whereby an individual receiving a lump sum distribution from a qualified pension or profit sharing plan can preserve the tax deferred status of these funds by a “rollover” into an IRA or another qualified plan if rolled over within sixty days of receipt.

Technical analysis
An analysis of price and volume data as well as other related market indicators to determine past trends that are believed to be predictable into the future. Charts and graphs are often utilized.

Total debt to total assets
Short-term and long-term debt divided by total assets of the firm. A measure of a company’s financial risk that indicates how much of the assets of the firm have been financed by debt.

Trading range
The spread of prices that a stock normally sells within.

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).

Treasury bill
Short-term debt security issued by the federal government for periods of one year or less.

Treasury bond
Longer-term debt security issued by the federal government for a period of seven years or longer.

Treasury note
Longer-term debt security issued by the federal government for a period of one to seven years.

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).

Unfunded Prior Service Pension Liability
In a defined benefit pension plan, the difference between the actuarially-determined value of the projected future benefit costs (both vested and manifested) and administrative expenses, as well as the unamortized portion of prior benefit costs, under the plan, and the market value of the plan’s assets.

Unfunded Vested Pension Liability
In a defined benefit pension plan, the difference between the actuarially-determined value of the vested (non-forfeitable) benefits under the plan, and the market value of the plan’s assets.

Valuation
The process of determining the current worth of an asset.

Value Line index
The index represents 1,700 companies from the New York and American Stock Exchanges and the over-the-counter market. It is an equal-weighted index, which means each of the 1,700 stocks, regardless of market price or total market value, are weighted equally.

Variability
The possible different outcomes of an event. As an example, an investment with many different levels of return would have great variability.

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.

Wilshire 5000 equity index
A stock market measure comprising 5,000+ equity securities. It is the broadest US stock market index and includes all New York Stock Exchange and American Stock Exchange issues and the Nasdaq Stock Market. It is a capitalization-weighted index.

Wrap Account
A special type of brokerage arrangement where the investors place their funds and pays an annual fee for investment management services. All costs are “wrapped” into this one fee including all administrative fees, commission costs, management fees, etc.

Yield
The amount of interest paid on a bond divided by the price. A measure of the income generated by a bond. A yield is not a total return measure because it does not include capital gains or losses.

Yield curve
A curve that shows interest rates at a specific point for all bonds having equal risk but different maturity dates. Usually, government bonds are used to construct such curves.

Yield to maturity
The rate of return anticipated on a bond if it is held until the maturity date.

Zero coupon
A bond bought at a discount to its face value that does not pay interest, but pays face value on maturity. The longer the time between when you purchase the bond and it matures, the deeper the discount. Your earnings on this type of bond is the difference between your purchase price (the discount) and the face value at maturity.

Source: http://www.401khelpcenter.com