- 401(k) PlanA qualified employer-sponsored retirement plan that allows eligible employees of a company to save and invest for their retirement on a tax-deferred basis. An employer may also choose to make contributions to the plan, but this is optional. Employer contributions may be Matching Contributions, Non-Elective Contributions, or both. After-tax or Roth 401(k) employee contributions may also be permitted.
- 403(b) PlanA tax-sheltered annuity (TSA) retirement savings plan available to employees of certain public education organizations, non-profit employers and cooperative hospital service organizations. It is very similar to a 401(k) Plan but is exempt from certain administrative processes applicable to a 401(k) Plan, such as Discrimination Testing, and thus has lower administrative costs.
- 457 PlanA type of nonqualified tax-advantaged deferred compensation retirement plan that is available for certain governmental and non-governmental tax-exempt entities. The employer provides the plan and the employee defers compensation into it on a pre-tax or after-tax basis.
Affordable Care Act acronym. Comprehensive health care reform legislation signed into law by President Obama on March 23, 2010. Also known as the Patient Protection and Affordable Care Act (PPACA) or Obamacare.
- ACP TestActual Contribution Percentage Test acronym. In a 401(k) Plan, this is the test that is performed to determine if the employer matching contribution is discriminatory in favor of HCEs.
- Actuarial Valuation
An annual measurement, generally at the beginning of the Plan Year, of a pension plan’s assets versus liabilities, using investment, economic, demographic and other actuarial assumptions to determine the funded status of the plan. It is used to provide financial information required by the IRS, PBGC, plan auditors and other interested parties, and for plan accounting purposes.
- Actuarial Value of Assets
The value of a pension plan’s investments and other property, used by the Actuary for the purpose of an Actuarial Valuation. It may or may not equal the market value of the pension fund.
A business professional who analyzes the financial consequences of risk in areas with uncertain future events such as pensions and insurance. Actuaries determine how much needs to be contributed to pension plans in a given year so that benefits will be available when employees retire.
- ADP TestActual Deferral Percentage Test acronym. In a 401(k) Plan, this is the test that is performed to determine if the contributions (average salary deferral percentages) of HCEs are too high in comparison to the NHCEs. This is the test that is most often failed in a traditional 401(k) Plan, resulting in refunds to the HCEs.
- Affordable Coverage
Coverage is defined as affordable if the participant’s cost for self-only coverage does not exceed 9.5% of the participant’s household income. There are three allowable method to determine the household income amount: the employee’s W-2 pay, the rate of pay, and the FPL.
Adjusted Funding Target Attainment Percentage acronym. It is calculated in the same way as the FTAP, except that both the numerator and the denominator are increased by the aggregate amount of annuities purchased by the plan for participants (other than HCEs) during the 2 preceding Plan Years.
- Annual AdditionsThe total of all employer contributions, employee contributions (not including rollovers), and forfeitures allocated to a participant's 401(k) Plan account during a year.
- Annual Funding Notice
A pension plan must give participants this notice no later than 120 days after the end of each Plan Year. The notice must include, among other things, the plan’s funding percentage, a statement of the value of the plan’s assets and liabilities, a description of how plan assets are invested as of specific dates, and a description of the benefits under the plan that are guaranteed by the PBGC.
A series of periodic payments, payable monthly or at other specified intervals, often over the lifetime of the recipient. Pension payments are often paid to retirees in the form of an Annuity.
- Applicable Large Employer (ALE)
Any company or organization that has an average of at least 50 full-time employees or "full-time equivalents" (FTE). For the purposes of the Affordable Care Act, a full-time employee is someone who works at least 30 hours a week.
Administrative Services Only acronym. An arrangement in which an employer hires a third party to deliver administrative services to the employer such as claims processing and billing; the employer bears the risk for claims. This is common in self-insured health care plans.
- Asset Smoothing
The process of spreading investment gains and losses over a period of time. Rather than using the market value of a pension fund’s assets, an Actuary may calculate the Actuarial Value of Assets by taking a multi-year average of the investment gains or losses in order to help reduce volatility related to a plan's assets for purposes of calculating the Minimum Required Contribution.
- Automatic (“Auto”) EnrollmentA 401(k) Plan feature that allows an employer to enroll an eligible employee in the employer's plan unless the employee affirmatively elects otherwise. A minimum default employee contribution usually is set, but employees may choose to contribute a different percentage.
- Automatic (“Auto”) EscalationA 401(k) Plan feature that automatically increases an employee's contribution amount. For example, an employee’s contribution (as a percentage of pay) may automatically increase by 1% each year up to 10% of pay. Plan participants are allowed to opt out of automatic escalation.
For a Defined Benefit (DB) plan, the person designated to receive pension benefits in the event of the death of the participant, either before or after the participant begins receiving pension payments.
For a Defined Contribution (DC) plan, the person designated to receive a participant’s retirement account in the event of the death of the participant. Following a participant’s death, the account becomes the property of the Beneficiary.
- Benefit Payment Methods
Following are some common payment methods for pension plan benefits:
- Single Life Annuity – An Annuity paid for the life of the retiree, with no additional payments to survivors.
- Joint and Survivor Annuity – An Annuity paid for the life of the retiree, with a percentage of the original Annuity (e.g., 50% , 75%, 100%) paid to a Beneficiary following the death of the retiree
- Certain and Life Annuity – An Annuity paid for the life of the retiree, with a guaranteed number of payments. If the retiree dies before receiving the guaranteed number of payments, then the remaining payments will be paid to a Beneficiary.
- Level Income Annuity – An Annuity paid for the life of the retiree, designed to provide a level amount of income when combined with Social Security Benefits. The Annuity reduces to a smaller amount (or $0) when the retiree’s Social Security Benefits begin at age 62 or 65.
- Lump Sum Payment – A single payment of the value of a retiree’s entire pension plan benefit.
- Blackout Period
When a plan sponsor makes major changes to the plan, such as a decision to switch from one DC Plan vendor to another, there is typically a period during which participants are not permitted to make changes in their investment selections or request loans or distributions. This is known as the Blackout Period, and it can last up to 60 days.
- Bronze Health Plan
A plan category in the ACA Marketplace which describes individual health insurance plans with the least expensive Premiums and the highest Co-payment and Coinsurance amounts. Bronze Health Plans often have high deductibles.
- Carrier Audit
A comprehensive review of an insurance company to ensure that all payments are correct and appropriate for legitimate expenses covered by the health plan. A Carrier Audit may be completed on both Fully and Self-Insured Plans to achieve plan efficiencies, ensure legal compliance, recover cash and eliminate future spending problems.
- Carrier Covered Member Reconciliation
The process of comparing insurance carriers’ records of covered members to the employer/plan sponsor’s and/or administrator’s records to ensure accuracy and consistency of covered members, which ultimately leads to confirming accuracy of premiums and ASO fees.
- Carrier Feed
Employee benefits and enrollment data that a plan sponsor provides electronically to an insurance company for open enrollment, life change events, new hires, terminations, and address and other changes to ensure the carrier has current and accurate information about plan members.
- Carrier Premium Reconciliation
The process of comparing the insurance company’s records of premiums and payments to the employer plan sponsor’s records to ensure accuracy and consistency with the contract.
- Catastrophic Health Plan
A plan category under the ACA that is a high-deductible health plan for people who are under age 30 or who qualify for a Hardship Exemption. The Premium amounts are generally lower, but the out-of-pocket costs for Deductibles, Co-payments and Coinsurance are generally higher.
- Catch-up Contribution
A feature of 401(k) Plans, 403(b) Plans and most 457 Plans that permits an eligible employee who has attained age 50 to make a higher annual contribution to the plan.
Children’s Health Insurance Program acronym. Provides health coverage to low- and moderate-income children. It is jointly funded and administered by the states and the federal government. It was originally called the State Children’s Health Insurance Program (SCHIP).
- Claims Adjudicator
Someone who processes claims for an insurance company or an independent claims adjudication facility. They investigate and negotiate claims filed by insurance policy holders. They verify eligibility for coverage and get claims paid – or find out why they have been denied. Also known as a Claims Adjuster.
- Closed Pension Plan
A pension plan that is closed to new participants as of a specified date.
Centers for Medicare & Medicaid Services acronym. The federal agency that runs Medicare, Medicaid, the CHIP, and the Marketplace.
A fixed dollar amount—such as $25 for each doctor visit—that a covered plan member pays for medical services. Also referred to as Co-pay.
Consolidated Omnibus Reconciliation Act (COBRA) acronym. This law provides certain former employees, retirees, spouses, former spouses and dependent children the right to temporary continuation of health coverage at a former employer’s group rates for a limited period of 18 or 36 months. A plan may provide longer periods of coverage beyond the minimum period required by law.
A percentage of a health care cost—such as 20%—that a covered employee pays after meeting the deductible. Coinsurance rates may differ between services received from an approved provider and those received from providers not on the approved list.
- Community Rating
A way of pricing insurance where every policyholder pays the same Premium, regardless of health status, age or other individual factors.
- Cost of Living Adjustment (COLA)
An adjustment (increase) made to a pension benefit payment in order to counteract the effects of inflation.
- Creditable Coverage
Health insurance coverage that meets a minimum set of qualifications. Types of Creditable Coverage plans include group health plans, individual health insurance, student health plans, as well as a variety of government-sponsored or government-provided plans.
A fixed dollar amount that an insured person pays out of pocket each year before the plan will begin reimbursing for covered medical expenses. Plans may have both individual and family deductibles. Some plans have separate deductibles for specific services.
- Defined Benefit (DB) Plan
An employee group retirement plan established and maintained by an employer that uses a predetermined formula to calculate the amount of an employee’s retirement benefit. The benefit formula may take into consideration an employee’s years of service and/or pay during employment. No individual accounts are maintained. Often referred to as pension plans.
- Defined Contribution (DC) Plan
A retirement plan where employers, employees, or both make regular contributions, and future benefits are based on how much money goes into the plan and how the plan's investments perform. DC Plans provide an individual retirement account for each participant, with employees bearing the risk of investment losses. The 401(k) is a well-known example of a DC Plan.
A dependent, usually a spouse or child, of an insured person who is eligible for insurance coverage. Under the ACA, individuals may be able to claim a Premium Tax Credit to help cover the cost of coverage for themselves and their dependents.
- Dependent Eligibility Audit
An audit which typically involves hiring an outside vendor to verify the eligibility of all enrolled dependents in an employer’s health plan. This is sometimes also referred to as a Dependent Audit, Verification Audit, or Dependent Verification Audit.
- Disability Retirement
A termination of employment as a result of a totally disabling injury or illness occurring before a participant is eligible for Early Retirement or Normal Retirement. Pension plans may provide additional benefits due to a Disability Retirement, and such benefits may be payable immediately or deferred.
- Discrimination Testing
All tax qualified retirement plans must be administered in compliance with numerous regulations to comply with IRS guidelines. IRS guidelines for DB and DC plans require a number of compliance tests to ensure that plan coverage and benefits do not favor HCEs. DC Plan compliance tests include ACP and ADP tests. The common term for these compliance tests is called Discrimination Testing.
- Disease Management
A broad approach to coordinating the entire disease treatment process for a patient. The process is intended to reduce health care costs and improve the quality of life for individuals by preventing or minimizing the effects of a disease, usually a chronic condition.
- Donut Hole, Medicare Prescription Drug
A coverage gap which exists in most plans with Medicare prescription drug coverage (Medicare Part D). After the insured and the plan have spent a certain amount of money for covered drugs, the insured has to pay all costs out-of-pocket up to an annual limit. After costs reach this limit, the coverage gap ends and the plan helps pay for covered drugs again.
- Early Retirement
A termination of employment before a participant is eligible for Normal Retirement, but after he is eligible for an accrued benefit. Early Retirement eligibility is usually based on an age or a combination of age and service. An Early Retirement benefit often reflects a reduction factor for the number of years by which the Early Retirement age precedes the Normal Retirement age.
- Elective Deferrals
Amounts contributed to a plan by the employer at the employee's election and which, except to the extent they are designated Roth or after-tax contributions, are excludable from the employee's gross income. Elective deferrals include deferrals under 401(k) and 403(b) Plans.
- Enrolled Actuary
An Actuary who has satisfied the qualifications set forth in the regulations of the Joint Board for the Enrollment of Actuaries and who has been approved by the Joint Board to perform actuarial services under ERISA.
Employee Plans Compliance Resolution System acronym. The IRS offers the following three programs to identify and correct plan mistakes and avoid the consequences of plan disqualification:
- Self-Correction Program (SCP) - permits a Plan Sponsor to correct certain plan failures without contacting the IRS or paying any fee.
- Voluntary Correction Program (VCP) - permits a Plan Sponsor to, any time before audit, pay a fee and receive IRS approval for correction of plan failures.
- Audit Closing Agreement Program (Audit CAP) - permits a Plan Sponsor to pay a sanction and correct a plan failure while the plan is under audit.
Exclusive Provider Organization acronym. An EPO is a plan that obligates employees to use their providers exclusively to receive coverage, in contrast to a PPO which merely offers a financial incentive for enrollees to use preferred providers. An EPO is a specific type of PPO plan that can be either self-insured or insured through an insurance company.
Employee Retirement Income Security Act acronym. ERISA, passed in 1974, is federal legislation which is designed to protect the interests of employees participating in employer-sponsored benefit plans.
For pension plans, ERISA also sets minimum standards for plan design to increase the security of private sector employees’ benefits, including requirements for pension plan disclosures, participation standards, vesting rules, funding and administration.
Employee Stock Ownership Plan acronym. A plan in which the employer pays a designated amount into a fund which then is invested primarily in company stock. Stock is distributed to employees according to a formula.
Employer Shared Responsibility Payment acronym. ACA requires certain employers with at least 50 FTEs to offer health insurance coverage to its FTEs (and their Dependents) that meets certain minimum standards set by the ACA or to make a shared responsibility tax payment called the ESRP.
- Essential Benefits
ACA requires all health plans offered in the individual and small group markets, both inside and outside the Marketplace, offer a comprehensive package of items and services. Essential Benefits include services within core categories, including hospitalization, outpatient services, maternity and newborn care, prescription drugs, emergency care and preventive and wellness services.
ACA created “American Health Benefit Exchanges” in each state to assist individuals and small businesses in comparing and purchasing a Qualified Heath Plan. Exchanges determine who qualifies for subsidies and make subsidy payments to insurers on behalf of individual receiving them. They also accept applications for other health coverage programs, such as Medicaid and the CHIP.
- External Review
The review of a health plan’s determination that a health care service or treatment is not or was no medically necessary. The review is done by a person or entity with no affiliation or connection to the health plan. ACA requires all health plans to provide an external review process that meets minimum standards.
- Fee for Service
A method of health insurance payments in which doctors and other health care providers are paid for each particular service performed. Examples of services include tests and office visits.
For Defined Benefit (DB) plans, any person who exercises power and control, management or disposition with regard to a pension plan’s assets, or who has authority to do so or who has authority or responsibility for plan administration.
For Defined Contribution (DC) plans, any person with discretionary authority over plan administration or investments. Plan fiduciaries ordinarily include the employer, trustees, and investment advisers. Fiduciaries must discharge their duties solely in the interest of the plan participants and are accountable for any actions which may be construed by the courts as breaching that trust.
- Flexible Benefits Plan
Also known as a Section 125 Cafeteria Plan. An employer-sponsored benefits plan that offers employees a choice between permissible taxable benefits, including cash, and nontaxable benefits such as life and health insurance, vacations, retirement plans and child care. The plan may be funded solely by the employer or through joint employer-employee contributions.
Family and Medical Leave Act acronym. A federal law that guarantees up to 12 weeks of job protected leave for certain employees when they need to take time off due to serious illness or disability, to have or adopt a child, or to care for another family member. When on leave under FMLA, an employee continues coverage under the employer’s health plan.
The part of an employee’s account balance (employer contributions) that is lost because it is not vested when the employee terminates employment.
- Form 1094-B
A cover sheet used by insurance providers when they send the Internal Revenue Service (IRS) information about who has health coverage that meets the standards of the Affordable Care Act.
- Form 1094-C
IRS transmittal form that must be filed with the Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) as required under the Affordable Care Act.
- Form 1095-B
Health insurance tax form sent by insurance providers that is used for verification of qualifying health coverage (referred to as “minimum essential coverage”) for some or all months during the year.
- Form 1095-C
Employer-Provided Health Insurance Offer and Coverage is an IRS tax form that each Applicable Large must send at year’s end reporting health coverage offered to employees.
A list of prescription drugs covered by the health plan, often structured in tiers that subsidize low-cost generics at a higher percentage than more expensive brand-name or specialty drugs.
Federal Poverty Level acronym. A measure of income issued each year and used to determine eligibility for Medicaid and CHIP coverage, as well as eligibility for Premium and cost-sharing subsidies in the Exchange and other federal programs.
- Frozen Pension Plan
A Closed Pension Plan that limits future benefit accruals for some or all active plan participants. Some frozen plans may not allow participants to accrue any additional benefits, while others may change the prospective benefit formula in such a way as to limit future benefit accruals.
Flexible Spending Account or Arrangement acronym. FSAs are accounts offered and administered by employers that provide a way for employees to set aside, out of their paycheck, pretax dollars to pay for medical expenses not covered by the employer’s health plan. FSAs can also be provided to cover childcare expenses, but those accounts must be established separately from medical FSAs.
Funding Target Attainment Percentage acronym. It is calculated as the Actuarial Value of Assets divided by the Funding Target and is expressed as a percentage. The FTAP is one measure of how well a pension plan is funded on a current basis.
Full-Time Employee acronym. A FTE is generally one who is employed an average of 30 or more hours per week for more than 120 days in a year.
- Fully Insured Plan
In an insured plan, the employer contracts with another organization to assume financial responsibility for the costs of enrollees’ medical claims and for all incurred administrative costs.
- Funding Policy
A statement clarifying the goals and objectives for funding a pension plan, and how the plan sponsor will achieve them. The policy may include the amounts and timing of future contributions.
- Funding Target
The present value (determined as of the date of the Actuarial Valuation) of all benefits under the pension plan that have accrued as of the first day of the Plan Year based on prescribed actuarial assumptions and cost methods.
- Gold Health Plan
A plan category in the ACA Marketplace which describes health insurance plans that pay for more out-of-pocket costs than Bronze or Silver Health Plans. Gold Health Plans pay, on average, 80% of the cost for covered benefits.
- Grandfathered Health Plan
A health plan that an individual was enrolled in prior to March 23, 2010 when the ACA was signed into law. Grandfathered health plans are exempted from most of the changes required by ACA. Depending on each company’s rules, new employees may be added to group health plans that are grandfathered, and new family members can be added to all grandfathered health plans.
- Group Health Plan
An employee welfare benefit plan that is established or maintained by an employer, an employee organization (such as a union) or both, that provides medical care for participants and/or their dependents through insurance, reimbursement or some other means.
- Hardship Exemption
For plan years before 2019, most people had to pay a fee if they didn’t have health coverage that qualified as MEC. One exception was for people who faced certain "hardships" that prevented them from becoming insured.
- Hardship Withdrawals
Employees usually are not penalized when money is withdrawn from a DC Plan as a result of a hardship, often defined as a death or illness of a family member, educational expenses, sudden uninsured losses, or a need to prevent eviction from one’s primary residence.
Highly Compensated Employee acronym. An employee who received more than the published IRS limit in compensation during the preceding Plan Year and, if the employer so chooses, was in the top 20% of employees when ranked by compensation OR is a greater than 5% owner in the company.
High-Deductible Health Plan acronym. An HDHP features higher annual deductibles than traditional health plans, such as a PPO or HMO. With the exception of preventive care, covered employees must meet the annual deductible before the plan pays benefits. HDHPs, however, may have significantly lower Premiums than a PPO, HMO or other traditional plan.
The U.S. Department of Health and Human Services acronym. HHS is a federal agency that oversees CMS. The stated mission of HHS is to enhance and protect the health and well-being of all Americans.
- High-Cost Excise Tax
Under the ACA starting in 2018, an excise tax on insurance companies that provide high-cost plans. This tax encourages streamlining of health plans to make Premiums more affordable. It is also called the Cadillac Tax.
Health Insurance Portability and Accountability Act of 1996 acronym. A federal law enacted in 1996 which made it easier for individuals to move from job to job without the risk of being unable to obtain health insurance or having to wait for coverage due to a Pre-Existing Medical Condition.
- HIPAA Eligible Individual
Status once an individual has had 18 months of continuous Creditable Coverage and met other certain requirements. Being a HIPAA Eligible Individual gives a person greater protections when buying individual health insurance than they would otherwise have under state law.
Health Maintenance Organization acronym. HMOs assume both the financial risks associated with providing comprehensive medical services and the responsibility for delivering health care in a particular geographic area, usually in return for a fixed, prepaid fee from members. HMOs emphasize preventive care and cover most types of care in full or subject to a copayment.
Health Reimbursement Arrangement acronym.Also known as Health Reimbursement Account. Unlike HSAs, only an employer may fund an HRA and the funds revert back to the employer when the employee leaves the organization. HRAs are not subject to the same contribution limits as HSAs, and they may be paired with either HDHPs or traditional health plans.
Health Savings Account acronym. HSAs may be opened by employees who enroll in a HDHP. Employees can put money in an HSA, up to an annual limit, using pre-tax dollars. Employers may also contribute funds to these accounts within the prescribed limit. HSA funds may be used to pay for medical expenses, and no tax is owed on funds withdrawn from an HSA to pay for medical expenses. HSAs are individually owned and the account remains with an employee after employment ends.
- Hybrid Pension Plan
A pension plan that does not have a traditional defined benefit formula:
- Cash balance plan – For each year of work, employees are credited with contributions to a notional account, along with interest on the contributions, which will provide a set account balance at retirement. Benefits are generally paid as a lump sum.
- Pension equity plan – For each year of work, employees are credited with a percentage of their final average earnings. Benefits are generally paid as a lump sum.
- In-Network Provider
Doctors, clinics, hospitals and other providers with whom the health plan has an agreement to care for its members and not to balance bill patients for amounts beyond the agreed upon fee. Health plans cover a greater share of the cost for in-network providers than for providers who are out-of-network.
- In-Service Distribution
A distribution from a 401(k) Plan to employees who have not terminated employment. In-Service Distributions are restricted by federal law and by most plans.
- Individual Health Insurance Policy
A health insurance policy that is not connected to job-based coverage. It is a policy that an individual purchases, on either an individual or family basis, as opposed to obtaining it through an employer. Policies can be purchased through the Exchange or directly from a health insurance carrier and they are regulated under state law.
- Insured Plan
Under this type of plan, an employer contracts with another organization to assume financial responsibility for the costs of participants’ medical claims.
- Integration with Social Security
A pension plan design in which an employer’s contributions to Social Security (FICA taxes) are taken into account when plan benefits are computed. Integration is accomplished by an offset or a step-rate method.
- Offset method – Part of a participant’s Social Security benefit is subtracted from the pension benefit otherwise payable by the plan. The most common offset is 50 percent.
- Step-rate method – Lower benefit accrual rates are applied to earnings up to the specified taxable Social Security wage base; higher rates are applied to earnings above the wage base.
- Investment Policy
A statement clarifying the goals and objectives for investing a pension plan’s assets. The policy may include general investment goals and objectives along with target allocations for various asset classes (for example, stocks, bonds, real estate and cash).
Individual Retirement Account acronym. An IRA is a retirement savings plan. There are several types of IRAs: Traditional IRAs; Roth IRAs; Simplified Employee Pensions (SEP) IRAs; and Savings-Incentive Match Plans for Employees (SIMPLE) IRAs. Traditional and Roth IRAs are established by individuals, while SEP and SIMPLE IRAs are retirement plans established by employers.
- IRS Section 6055
Affordable Care Act IRS tax code calling for every provider of minimum essential coverage to report coverage information by filing an information return with the IRS and providing a statement to individuals.
- IRS Section 6056
Affordable Care Act IRS tax code which outlines what an Applicable Large Employer needs to do to notify their employees and the IRS about the health care coverage they offer.
- Key Employee
Any employee (including former or deceased employees), who at any time during the Plan Year was: an officer making more than an annual pay amount specified by the IRS; a 5% owner of the business; or an employee owning more than 1% of the business and making over an annual pay amount specified by the IRS.
DC Plans may allow participants to borrow employer funds, with interest, from their accounts. Loan amounts often are limited to a portion of the account balance. They usually have to be repaid within 5 years, but longer payment periods may apply for home purchase or renovation loans.
- Lump Sum Window
A temporary opportunity for specified pension plan participants to receive their vested accrued plan benefit in a one-time lump-sum payment.
Common term for a law signed in 2012 called the Moving Ahead for Progress in the 21st Century Act that established new funding rules for pension plans.
A transparent, competitive insurance market where individuals and small businesses can purchase affordable and Qualified Health Plans. This is also used for dependent children who age out of coverage eligibility. Also known as the Health Insurance Marketplace.
- Matching Contribution
A type of employer contribution to a DC Plan which requires an employee to contribute to the plan. The Matching Contribution usually depends on the Participant Contribution.
- Maximum Dollar Limit
The maximum amount payable by the insurer for covered expenses for an insured and each covered dependent. Plans can have a yearly or a lifetime maximum dollar limit. A common maximum dollar limit is a lifetime amount of $1 million per individual.
Minimum Essential Coverage acronym. Any health insurance that meets the ACA requirement for having health care coverage. Individuals with MEC do not have to pay the penalty for being uninsured, which applied through the 2018 plan year. Examples: individual plans, including Marketplace plans; job-based plans; Medicare; Medicaid and the CHIP. Also referred to as Qualifying Health Coverage.
A joint state and federal program that provides health care coverage to eligible categories of low-income individuals. Rules for eligible categories and for income and asset requirements vary by state. Coverage is generally available to all individuals who meet these state eligibility requirements. Medicaid often pays for long-term care (such as nursing home care).
A federal program that provides health coverage for all eligible individuals age 65 or older or under age 65 with a disability, regardless of income or assets. Eligible individuals can receive coverage for hospital services (Medicare Part A), medical services (Medicare Part B), and prescription drugs (Medicare Part D). Benefits can also be provided through a Medicare Advantage Plan (Medicare Part C).
- Medicare Advantage Plan (Medicare Part C)
An option Medicare beneficiaries can choose to receive most or all of their Medicare benefits through a private insurance company. Plans contract with the federal government and are required to offer at least the same benefits as Medicare, but may follow different rules and may offer additional benefits.
- Medicare Part D
An optional program that helps pay for prescription drugs for people on Medicare who join a plan that includes Medicare prescription drug coverage. These plans are offered by insurance companies and other private companies approved by Medicare. Covered individuals use the insurance carrier’s network of pharmacies to purchase prescription medications.
- Medicare Prescription Drug Donut Hole
A coverage gap which exists in most plans with Medicare prescription drug coverage (Medicare Part D). After the insured and the plan have spent a certain amount of money for covered drugs, the insured has to pay all costs out-of-pocket up to an annual limit. After costs reach this limit, the coverage gap ends and the plan helps pay for covered drugs again.
- Medicare Supplement Insurance
Private insurance policies that can be purchased to “fill-in the gaps” and pay for certain out-of-pocket costs such as Deductibles and Coinsurance not covered by Medicare (Part A and Part B). This is also known as Medigap Insurance.
- Minimum Required Contribution
The minimum amount of cash that must contributed to a pension plan by the plan sponsor, calculated for a given Plan Year. Contributions are generally required to be paid on a quarterly basis, with the final contribution due 8½ months after the end of the Plan Year.
- Money Purchase Plan
A type of plan where the employer agrees to make fixed contributions each year for eligible employees. The contribution is typically expressed as a percentage of the employee's pay. The contribution must be made each year, regardless of employer profits, and can only be varied by plan amendment. Although treated differently under federal tax law, it is fundamentally a DC Plan.
- Multi-Employer Plan
In general, a group health plan that is sponsored jointly by two or more employers. This type of health plan typically covers workers of two or more unrelated companies in accordance with a collective bargaining agreement.
Non-Highly Compensated Employee acronym. An employee who is not a Highly Compensated Employee (HCE).
- Non-Elective Contribution
A type of employer contribution to a DC Plan which does not require an employee to make their own contributions to the plan.
- Normal Retirement
A termination of employment when a participant is eligible to retire and receive all accrued benefits. Normal Retirement eligibility is usually based on an age (often age 65) or a combination of age and service.
Comprehensive health care reform legislation signed into law by President Obama on March 23, 2010. Also known as the Patient Protection and Affordable Care Act (PPACA) or the Affordable Care Act (ACA).
- Open Access HMO
An HMO that allows enrollees to receive services outside the network, but at higher costs. The additional costs may be in the form of higher deductibles, copayments, or coinsurance.
- Open Enrollment Period
A period of time when employees may elect or change the benefit options available through their employer, such as health, dental and life insurance and ancillary or Voluntary Benefits such as legal services or pet insurance.
- Out-of-Network Provider
A health plan will cover treatment for doctors, clinics, hospitals and other providers who are out-of-network, but covered employees will pay more out-of-pocket to use out-of-network providers than for in-network providers.
- Out-of-Pocket Limit
The most an employee could pay during a coverage period (usually one year) for his or her share of the costs of covered services, including Co-payments and Coinsurance. Until the limit is reached, the plan and the member share in the cost of covered expenses. After the limit is reached, the insurer pays all covered expenses, often up to a lifetime maximum.
An eligible employee who is covered by a retirement plan.
- Participant Contribution
The money that an employee contributes to their DC Plan account.
Pension Benefit Guaranty Corporation acronym. This federal corporation was established by ERISA to provide a safety net for participants in private-sector pension plans. The PBGC guarantees basic benefits under the plan in the event that the employer-sponsored pension plan becomes insolvent. Plan Sponsors are required to pay premiums to the PBGC each Plan Year for this benefit guarantee.
A regular payment made during a person's retirement from a pension plan fund to which that person and/or the person’s employer has contributed to during their working life.
- Plan Administrator
For Defined Benefit (DB) plans, the person(s) or entity ultimately responsible for the oversight, management and administration of the pension plan, and the administration and investment of the pension fund. The Plan Administrator may delegate some or all of its responsibilities for administering the pension plan and administering and investing the pension fund to various service providers.
For Defined Contribution (DC) plans, the person(s) or entity identified in the Plan Document as having responsibility for the oversight, management and administration of the DC Plan. It could be the employer, a committee of employees, a company executive or someone hired for that purpose. The Plan Administrator may delegate some or all of its responsibilities to various service providers.
- Plan Document
A comprehensive legal document that sets forth the rights of the plan’s participants and beneficiaries and guides the Plan Sponsor and Plan Administrator in making decisions and executing their responsibilities.
- Plan Sponsor
The company or employer that establishes a plan for the benefit of the organization’s employees.
- Plan Termination
The process, prescribed by the IRS, that a Plan Sponsor must go through to end a pension plan. PBGC coverage ends once a plan is terminated. There are two ways an employer can terminate its pension plan:
- Standard termination – occurs when a pension plan has enough money to pay all benefits owed to participants. The plan must either purchase an annuity from an insurance company to provide the participants’ benefits or offer participants a single lump-sum payment of the entire benefit.
- Distress termination – occurs when a pension plan is not fully funded and the employer is in financial distress. The employer must prove to a bankruptcy court or the PBGC that it cannot remain in business unless the plan is terminated. PBGC will take over the plan as trustee and pay guaranteed plan benefits using plan assets and PBGC guarantee funds.
- Plan Year
The one-year period for which plan records are maintained. The Plan Year may be a calendar year, the employer’s fiscal year or another one-year period specified in the Plan Document.
Point-of-Service acronym. A POS plan combines features of PPOs and traditional HMOs. POS enrollees receive more generous benefits for services within the network and for specialist care authorized by their primary care physicians. Benefits are less generous for care received outside the network and for self-referrals.
Pension Protection Act of 2006 acronym. The PPA made significant reforms to U.S. pension laws and regulations, sought to hold Plan Sponsors more accountable for underfunded pension plans, and attempted to strengthen the overall pension system and reduce reliance on the PBGC.
Patient Protection and Affordable Care Act acronym. Comprehensive health care reform legislation signed into law by President Obama on March 23, 2010. Also known as the Affordable Care Act (ACA) or Obamacare.
Preferred Provider Organization acronym. A PPO is a type of managed care health insurance plan that provides maximum benefits if an employee visits an in-network physician or provider, but still provides some coverage for out-of-network providers. Additional costs for out-of-network providers may be in the form of higher deductibles, higher coinsurance rates, or both, or undiscounted charges.
- Pre-Existing Medical Condition
An illness or medical condition for which an individual received medical advice, diagnosis, care or treatment prior to the date of enrollment in a health benefit plan.
The amount that must be paid for a health insurance plan by covered employees, by their employer, or shared by both. A covered employee's share of the annual Premium is generally paid periodically, such as monthly, and deducted from his or her paycheck.
- Premium Tax Credit
A tax credit that eligible individuals who enroll for a Qualified Health Plan through the Marketplace can use to lower health plan Premiums. Individuals who quality can take the Premium Tax Credit in the form of advance payments to lower their monthly Premiums. The amount of the credit depends on how much income the eligible individual or family expects to earn.
- Preventive Benefits
Covered services that are intended to prevent disease or to identify a disease while it is more easily treatable. ACA requires insurance plans to provide coverage for Preventive Benefits without Deductibles, Co-payments or Coinsurance.
- Profit Sharing Plan
A DC Plan in which a company credits shares of profits to participants’ accounts; employee contributions are not required. Plans may have a fixed formula for sharing profits, but it is not required. Profit sharing contributions to employees’ accounts may be discretionary. Contributions may be allocated proportional to employees’ salaries or in an equal allocation to all employees.
Qualified Default Investment Alternative acronym. A QDIA is a default investment used in a 401(k) Plan when money is contributed to an employee's account, but the employee has not made their investment election.
Qualified Domestic Relations Order acronym. A judgment, decree or domestic order that creates or recognizes an alternate payee’s right to receive all or a portion of a participant’s benefit. An alternate payee may be the participant’s former spouse, child or other dependent.
Qualifying Life Event acronym. A change in a person’s situation — such as getting married, having or adopting a baby, or losing health coverage — that makes the individual eligible to enroll in or change health insurance and other Flexible Benefits Plan elections outside the yearly Open Enrollment Period.
- Qualified Health Plan
A health insurance policy that is sold through an Exchange. ACA requires Exchanges to certify that Qualified Health Plans meet minimum standards contained in the law.
- Qualifying Health Coverage
Any health insurance that meets the ACA requirement for having health care coverage. Individuals with Qualifying Health Coverage do not have to pay the penalty for being uninsured, which applied through the 2018 plan year. Examples: individual plans, including Marketplace plans; job-based plans; Medicare; Medicaid; and the CHIP. Also referred to as MEC.
- Retiree Health Plan
A health plan that provides coverage to retirees beyond what is mandated by COBRA or other health continuation laws. The retiree plan does not have to be the same plan that an employer provides its active employees, and the retiree may or may not pay the entire Premium.
A direct transfer of assets from one qualified retirement plan to another qualified retirement plan or IRA. In a direct rollover, the employee is not taxed on the payment until it is withdrawn or distributed later. This is sometimes called a "trustee to trustee" transfer, which is made without any funds being sent directly to the plan participant.
- Roth 401(k)
A 401(k) Plan feature that allows employees to make contributions on an after-tax basis. Qualified withdrawals are generally tax free if made after five years and after attaining age 59½.
- Roth IRA
Roth Individual Retirement Account acronym. A retirement account to which an individual can make annual after-tax contributions according to annual limits that are specified by the IRS.
- Safe Harbor 401(k) Plan
A 401(k) Plan that is designed in such a way that the plan automatically passes Discrimination Testing or avoids it all together. It is similar to a traditional 401(k) Plan, but the employer is required to make Matching Contributions or Non-Elective Contributions for each employee.
- Savings and Thrift Plans
DC Plans in which employees may contribute a predetermined portion of earnings (usually pre-tax) to an individual account. Employers may match a fixed percentage of employee contributions or a percentage that varies by length of service, the amount of employee contribution, or other factors. Contributions are invested as directed by the employee or employer.
Summary of Benefits and Coverage acronym. An easy-to-read summary used to make apples-to-apples comparisons of costs and coverage between health plans. Individuals can use the SBC to compare plan options based on price, benefits, and other features.
- Section 125 Cafeteria Plan
Also known as a Flexible Benefits Plan. An employer-sponsored benefits plan that offers employees a choice between permissible taxable benefits, including cash, and nontaxable benefits such as life and health insurance, vacations, retirement plans and child care. The plan may be funded solely by the employer or through joint employer-employee contributions.
- Self-Insured Plan
Under this type of plan, the employer directly assumes the major cost of health insurance for its employees. Some self-insured plans bear the entire risk while other insure against large claims by purchasing stop-loss coverage. Some plans use insurance carriers or third-party administrators for claims processing and administration, while others are self-administered.
Simplified Employee Pensions acronym. An IRA is established for each eligible employee. The employee is immediately vested in employer contributions and generally directs the investment of the money. These arrangements are sometimes called SEP IRAs.
Special Enrollment Period acronym. A time outside the yearly Open Enrollment Period when an individual can sign up for health insurance. To qualify for a SEP, an individual must have a QLE, such as losing health coverage, becoming eligible for Medicare coverage, moving, getting married, having a baby, or adopting a child.
- Silver Health Plan
A plan category in the ACA Marketplace which describe health insurance plans that pay for more out-of-pocket costs than Bronze or Catastrophic Health Plan but fewer costs than Gold or Platinum Health Plans. Silver Health Plans pay, on average, 70% of the cost for covered benefits.
Savings-Incentive Match Plan for Employees acronym. A plan limited to employers with fewer than 100 employees who do not have any other qualified retirement plan. SIMPLE plans can be either part of a 401(k) Plan or established as IRAs. Employers must either make Matching Contributions of up to 3% of pay or make 2% of pay Non-Elective Contributions to all eligible employees.
Summary Plan Description acronym. An SPD is a document that an employer must automatically provide at no cost to plan participants. The SPD is an understandable summary of the benefits the plan provides and how the plan works.
- Stock Bonus Plan
Contributions are placed in a trust fund that invests in securities, including those of the employing company. This type of plan is financed by the employer or jointly by the employer and employee. Upon the employee’s retirement or separation from the company, proceeds from the trust fund are paid out in the form of company stock or cash.
- Subsidized Coverage
Health coverage available at reduced or no cost for people with incomes below certain levels. The employer and employee share the cost of coverage, if any. Examples of Subsidized Coverage include Medicaid and the CHIP. Marketplace insurance plans with Premium Tax Credits are sometimes known as Subsidized Coverage too.
- Target Normal Cost
The present value (determined as of the date of the Actuarial Valuation) of all benefits under the pension plan that are expected to accrue during the current Plan Year based on prescribed actuarial assumptions and cost methods.
- Third Party Administrator
A party hired by a Plan Sponsor or Fiduciaries to aid in performing management and/or recordkeeping functions for the DC Plan.
- Top Heavy
A DC plan is tested annually for Top Heavy status. A plan is Top Heavy when more than 60% of the plan’s assets are attributable to Key Employees. If determined to be Top Heavy, the plan is subject to certain minimum contribution and vesting requirements.
- Traditional HMO
An HMO that provides no benefits for services obtained outside the network.
- Traditional IRA
Traditional Individual Retirement Account acronym. A retirement account to which an individual can make annual tax-deductible contributions according to annual limits that are specified by the IRS.
- Traditional Pension Plan
A pension plan that has a traditional defined benefit formula:
- Career earnings formula – Benefits are based on a percentage of an average of career earnings for every year of service recognized by the plan.
- Dollar amount formula – Benefits are based on a dollar amount per month for each year of service recognized by the plan.
- Final average earnings formula – Benefits are based on a percentage of average earnings during a specified number of years at the end of a worker’s career (or when earnings are highest), multiplied by the number of years of service recognized by the plan.
The entity or group of individuals who hold the assets of a plan in trust. Trustees are either designated in the Plan Document or appointed by another Fiduciary, typically the Plan Sponsor.
- Usual, Customary and Reasonable Charge (UCR)
The cost associated with a health care service that is consistent with the going rate for identical or similar services within a particular geographic area. Reimbursement for an Out-of-Network Provider is often set at a percentage of the UCR, which may differ from what the provider actually charges for a service.
The amount of time a participant must work before earning a non-forfeitable right to a benefit.
For Defined Benefit (DB) plans, once a participant is vested, the accrued benefit is retained even if the worker leaves the employer before eligibility for Early Retirement or Normal Retirement. There are two types of DB plan vesting:
- Cliff vesting – No vesting occurs until an employee satisfies the service requirements for 100% vesting—for example, 5 years.
- Graded vesting – An employee’s non-forfeitable right to a benefit increases over time, until reaching 100%.
For Defined Contribution (DC) plans, vesting schedules vary under ERISA and only apply to employer contributions; employee contributions (including pre-tax contributions) are always 100% vested. There are three types of vesting schedules:
- Cliff vesting – No vesting occurs until an employee satisfies the service requirements for 100% vesting—for example, 5 years.
- Graded vesting – An employee’s non-forfeitable percentage of employer contributions increases over time, until vesting reaches 100%.
- Immediate full vesting – Employees are immediately eligible to receive 100% of employer contributions.
- Voluntary Benefits
Benefits offered by employers that are paid partially or completely by employees through payroll deductions. Examples of Voluntary Benefits include life and disability insurance, critical illness and accident insurance, pet insurance, ID theft protection and legal services.
- Waiting Period
A period of time that an individual must wait either after becoming employed or submitting an application for a health care plan before the coverage becomes effective and claims may be paid. Premiums are not collected during this period.
Prior to normal payout (usually at retirement), DC Plan participants may be allowed to withdraw all or a portion of the employer funds from their accounts. Although most early withdrawals incur tax penalties, Hardship Withdrawals do not. To avoid tax penalties, many plans have loan provisions that allow employees to borrow from their accounts, with interest, for a specified period.
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